Remittances and resident labor supply in a signaling model

This paper analyses the impact of remittances sent by altruistic migrants on the labor supply of left-home residents. The model is cast as a game between the migrant and the resident, where the former has only an imperfect information about the true economic situation of the latter. The optimal amount of remittances depends on wages of both agents. In the hybrid equilibrium of the game, some rich residents may behave as if they were poor only in order to manipulate remitters' expectations. Being aware of this risk, migrants reduce the amount of remittances accordingly. Poor residents can implement a costly signaling strategy of hour supply reduction, right when their economic situation is the worst.