Manifest 2006-007

OPEN BORDERS & SEARCH FOR OPPORTUNITIES

Sati Shankar
Global Synergetic Foundation
New Delhi,June.16th, 2008
www.satishankar.com

Abstract: We have taken up the term Open Border to mean simply that there are no or limited
migratory restrictions and the factors of productions and especially the human capital may cross
the international border for goods, services and other opportunities for employment to maximize
his/her satisfaction. An exercise of this type may have special significance, in this era of
globalization, as it may throw some light on the behavioral intricacies of the economic agents.
Information and Communication Technology (ICT) has made it feasible more by enabling the out
sourcing in which agents may market their productivities, without actually leaving physically, their
countries.

Keywords: migration , job, employment, opportunities, wages, disparity

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 Manifest 2006-007

OPEN BORDERS & SEARCH FOR OPPORTUNITIES

S.S.D.Pandey
www.satishankar.com

ORIENTATION

We have taken up the term Open Border to mean simply that there are no or limited migratory
restrictions and the factors of productions and especially the human capital may cross the
international border for goods, services and other opportunities for employment to maximize
his/her satisfaction. An exercise of this type may have special significance, in this era of
globalization, as it may throw some light on the behavioral intricacies of the economic agents.
Information and Communication Technology (ICT) has made it feasible more by enabling the
out sourcing in which agents may market their productivities, without actually leaving
physically, their countries.
An individual who feels deprived or dissatisfied of not having something, to be taken up in
detail later in this paper, and if borders are open, generally becomes tempted, as he perceives
incentive, to cross the border in search of opportunities to satisfy him self. This satisfaction
may be pecuniary or psychic and may come in the form of cheaper availability of goods,
services or opportunities which may either be due to lower cost of production or due to
differences in the rate of exchange.
The core of the idea plan lies in the interpretation of the above displacement of the individuals
as relative deprivation. The approach we follow partially belongs to Yitzhaki, (1979, 1982),
Runciman (1966).

Runciman (1966) defines four conditions:

(i) Individual does not have X
(ii) Individual sees some other agent(s), possibly including himself at some previous or
future point of time, as having X (whether or not that will be the case),
(iii) Individual wants X, and
(iv) Individual sees it feasible that he should have X.

The feeling of deprivation can be defined by (i) and (iii) where as the relativity of the concept is
due to (iii) and (iv).

If u(X) is an index of satisfaction for having X, we can define –u(X), as an index of deprivation of
having not more than X. Then maximizing u(X), with taking income constant, has the same
result as minimizing-u(X) and taking income constant. Hence utility and deprivation are the two
facets of the same coin. The former relates to “having” whereas the latter to “not having”. Two
different approaches, based on the relativity concept (i.e., existence of reference groups in the
society) and the welfare function, have been put forward. Deprivation arises from not having
the units is an increasing function of the number of individuals in the reference group who have
it. It should be noted here that envy or altrusion are not postulated, what counts is how agents
evaluate satisfaction and what they do not have.

Let two income units X1 and X2 contained in X and be represented by an income[Y, Y+∆Y]
when ∆Y→0.Let F(Y) be a cumulative distribution of income. Then 1-F(Y) is the percentage of
individuals whose income is higher than Y, hence 1-F(Y) represents the percentage of

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 Manifest 2006-007
individuals who have the goods (opportunities) represented by the income range [Y, Y+∆Y] and
the feeling of deprivation is an increasing function of the percentage of individuals who have
income larger than Y, i.e., 1-F(Y). Now let h (1-F(Y)) be the deprivation from not having [Y,
Y+∆Y], when h (0) =0 and h’>0. Then the individual whose income is Y is deprived of all the
units of the income above Y, i.e., h[Y, Y+∆Y]-h[Y].
Thus we can write

D(Y) = ∫ h [1-F (z)] dz (1)

Y

To simplify the discussion let us assume that h [1-F(Y)] = 1-F(Y).

The deprivation function is defined as “not having” but it is more convenient to work on a
concept defined on “having”. Why not 1-F(Y) might do just well- is not the case. If a rich
becomes richer than the reference group F(Y) remains the same and so does 1-F(Y). Yet a
proper measure of relative deprivation should be sensitive enough to these, it raises the level
of deprivation in the reference group.
Let us define the satisfaction (gratification) function as
Y
S(Y) = ∫ h [1-F (z)] dz (2)
0

Since we have assumed above that h [1-F(Y)] = 1-F(Y), (2) may be written as
Y
S(Y) = ∫ [1-F (z)] dz (3)
0

The satisfaction and the deprivation function complement each other in the following manner:

S(Y) + D(Y) = µ (4)

Where µ is mean income.

Hence while evaluating a change in the wellbeing of an individual, in a given reference group,
it does not matter which function we are using. However, once bring in the shifting from one
reference group to an other, i.e., when we introduce the border crossing, it may well happen
that satisfaction and deprivation increases or decreases in tandem. Note the properties of the
above functions:

∂S/∂Y = [-F(Y)] ≥0 (5)

∂2 S/∂Y2 = -f(Y) ≤ 0, (6)

i.e., the marginal gain (satisfaction) is nonnegative and nonincreasing.

Intuitively, the individual will be more satisfied the more valued are the goods (opportunities)
he possesses. This value is an increasing function of 1-F(Y), the function of the individual in the
reference group who possess these goods (opportunities).

From the above general set up some of the pertinent conclusions which can be drawn may be:

(a) that in a society in which possessing a car is uniformly desirable, having a car is more
valuable to an individual when many individuals possess cars than only a few do.
(b) An increase in the income of some one richer than the individual, does not affect
individual’s satisfaction but it increases his deprivation.
(c) An increase in the income of the person who is poorer than the individual, such that
individual’s rank in the reference group remains intact, increases satisfaction but does not
affect his deprivation.
(d) Deprivation of an individual can be written as a percentage of the individual who are richer

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 Manifest 2006-007
than the individual times their mean excess income, i.e.

D(Y) = [1-F(Y)] E (z-Y│z>Y) (7)

Where z is the income of the richer person. Hence, for a given mean excess income of the
person richer than the individual, the individual’s deprivation is an increasing function of the
percentage of such persons and
(e) The satisfaction of an individual can be written as:

S(Y) = µ (∂ Ф (F) / ∂ F(Y)) [(1-F(Y) + Ф (F)] (8)

And his deprivation function

D(Y) = µ [(1-ФF) -∂Ф / ∂ F (1-F(Y)] (9)

Where as before, F is the cumulative distribution of function i.e., the rank of the individual in
the reference group. Ф(F) is the Lorenz curve, i.e., the percentage of the total income received
by the individuals with income lower than the individual and (∂Ф / ∂F) is the slope of the
Lorenz Curve. It is worth noting that (∂Ф / ∂F) = Y/µ.

DEPRIVATION & CROSS BORDER SEARCH FOR OPPORTUNITIES

An individual who feels deprived in his own country has an incentive to cross the border, which
becomes easier if the border is open. This incentive is positively related to the possibility of
deprivation reduction through cross border mobility. In fact the actual decision to move across
the international border is a function of many considerations such as costs whether pecuniary
or psychic, availability of newer opportunities, better salability and marketability of
productivities and skills, attitude towards risk and so on.
Our object here is to examine the cross border movement of individuals on the basis of the
theory of relative deprivation. So our discussion will be restricted to, whether a relative
deprivation incentive to cross the border exists and if so whether it is weak or strong. The
predictions of the relative deprivation theory can be compared the predictions of the utility
theory which are closely linked to the human capital approach. The predictions of the utility
theory is fairly simple- an incentive for the individual to cross the international border exists if
the expected life time income from the opportunities appropriately discounted and netted
incomes.
Since the time dimension is fully and smoothly captured through the discontinuity procedure,
there is no need to distinguish between short term and long term considerations. It, however,
may be noted that in the short run the individual in question, i.e., who may be tempted to
migrate, preferably continues to associate him self with the original reference group. The
individual will have an incentive to cross the border only if his income increases-a conclusion
which replicates the predictions of the utility theory/human capital approach. In the long run,
the individual presumably associates himself with the new reference group in the new country,
and refers it as if it his new reference group.
In real life, there is presumably a medium run in between, where as the individual may
associate himself with two reference groups simultaneously- although not necessarily attaching
weight to each. The passage from short to long term may in deed be characterised by a
gradual reduction with weight attached to the original reference group and corresponding
increase in the weight attachment to the reference group at the destination. One approach
may be to consider the case where a perfect substitute of the reference group is possible.
Since the reference group an individual leaves and a reference group he joins are different, it
may happen that the individual feels less deprived but also less satisfied in his new reference
group or more satisfied yet more deprived. He feels more deprived in the new reference group

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 Manifest 2006-007
if others have more goods than he does and more satisfied if he does have more goods than he
had before in his original reference group.
Unless we explicitly model “taste” in such a case, it is not clear which considerations dominate.
We shall say that in a situation of this type there is a weak incentive to cross the border, i.e., a
weak incentive to cross the border exists if the satisfaction of the individual increases or
decreases with deprivation. The implication of this condition is that- it may happen that some
individuals may be tempted to cross the border if not all. Strong incentive may exist if there is
a negative relation between satisfaction and deprivation.

Thus the individual who considers crossing the border for good, say from one Reference group
A to the other reference group B on the other side to the border, has strong incentive if

DB < DA and
SB > SA

Assuming that both the reference groups are large enough so that effects of in flux or out flux
of individuals do not affect the income distribution by size, formally:
A satisfaction state exists if,

YB [1-FB] + µB ФB > YA [1-FA] + µA ФA (10)

The deprivation state exists if,

µB [1-ФB] – YB [1-FB] < µA [1-ФA] – YA [1-FA] (11)

By rearranging we can write the satisfaction condition (S-Condition) as,

YB-YA > µB FA [(YB/µB) - (ФB/FB)]

- µA FA [(YB/µA) - (ФA/FA)] (12)

And the deprivation condition,

YA-YB > (µB - µA) + µB FB [(YB/µB) - (ФB/FB)]

- µA FA [(YB/µA) - (ФA/FA)] (13)

Note that,

[(YB/µB) - (ФB/FB)] ≥ 0 (13a)

[(YB/µA) - (ФA/FA)] ≥ 0 (13b)

From the Lorenz curve we know that (Y/µ) is the slope where as (Ф/F) is the slope of the line
connecting the Lorenz curve. Since the Lorenz curve is convex, the nonnegativity is ensured.
Consequently, it can easily be seen that if the social parameters are identical, i.e.,
If µA = µB, ФA=ФB and FA=FB, then the prediction of the deprivation will be identical to the
predictions of the utility theory. In both cases, YB>YA is the sufficient condition for the individual
to decide to cross the border for good. However, if the social parameters are different across
reference groups, then the deprivation theory based predictions will be dependent on six
parameters (discussed else where) of which not all are independent.
Here we will be considering only two extreme cases- crossing the border by the richest and by
the poorest individuals.

Case I Richest Individuals

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 Manifest 2006-007

For a reference group A,

ФA = FA = 1 then from (10)

S: YB [1-FB] + µB ФB > µA (14)

And
From (11),

D; µB [1-ФB] – YB [1-FB] < 0 (15)

It may be observed, however, (as discussed elsewhere) that (14) can not be satisfied whereas,
(15) is fully satisfied.

YB > [(µA - µB ФB)/1-FB] (16)

However, if µA = µB even (14) can not be satisfied. After a careful analysis we may conclude
that the richest person will have only weak incentive to cross the border for good.

Case II Poorest Individuals

For the poorest person in the reference group A,

ФA = FA = 0 hence the satisfaction condition is,

S: YB – YA > µB FB [(YB/µB) - (ФB/FB)] (17)

And the deprivation condition,

D: YB – YA > (µB - µA) + µB FB [(YB/µB) - (ФB/FB)] (18)

The nonnegativity of the right hand side of (17) implies that the satisfaction is met if Y B – YA
sufficiently large. From D, condition (16), i.e., YB > [(µA - µB ФB)/1-FB] we can conclude that,

If (µB > µA),

the poorest individual has an incentive to cross the border if YB > YA by a large magnitude.
Moreover, when interpreted in terms of µB, the richer the reference group B is, the greater
possibility of increase in income which would act as greater incentive to cross the border.

On the other hand if (µB < µA),

Then the poorest individuals in A may still have a weak incentive to cross the border even if his
income declines in the original reference group A. A poor person may endure less deprivation if
he were to leave a rich reference group and join a reference group where only a few individuals
possess the goods which he does not posses.

References

Pandey S.S.D.
2000 Crossing the Border with Technology: A
case of Indo-Nepal Border Region in Eastern UP, GSI Working Paper ,
211
2000a Models of Cross Border Synergies, GSI Working Paper, 219
2001 Cross Border Economic Dynamics, GSI

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Working Paper ,301
2001a Determinants of Cross-Border Economic Relations, GSI Working Paper
307
2002 Managing Openness of Border Regions:
Indo-Nepal Border, GSI Working Paper ,313
2002a Emerging Issues in Active Space Development, GSI Working Paper,
328
2002b Cross-Border Synergies and Quality of life: A Snap Shot of Indo-Nepal
Border, GSI Working Paper, 344
Runciman W.F.
1966 Relative Deprivation & Social Justice: A study of attitudes to social
inequality in twentieth century England, Berkeley, University of
California Press
Yitzhaki S.
1979 Relative Deprivation & Gini Coefficient, Q.J.E., 93, Pp. 321-324
1982 Relative Deprivation & Economic Welfare, European Economic Rev.17,
99-113.