REGIONAL HETEROGENEITY, MIGRATION, AND SHADOW PRICES

This paper deals with some spatial influences on social scarcities: first, the existence of 'regional' goods, which usually implies differences in consumer prices; second, differences in preferences across locations; and third, a rigid wage in one region, which may result in ex post inequalities among migrants who were identical ex ante. It is shown that, in general, the shadow wage depends on regional differences in the cost of living and preferences, and that the effect of a shift from ex ante to ex post social welfare on the shadow wage is unclear. In this connection, the assumption that the marginal product of labor is (locally) constant proves to be much stronger than is commonly recognized. © 1991.