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human capital under the absence of emigration. The human capital gain can reach a
maximal value at and returns to its initial value at , while brain drain starts when
human capital is lower than .
3.2. Effects of Changes in risk attitudes
In order to refine the understanding of aggregate decisions, variations with respect to the
level of risk aversion ( ) are useful as aggregate decisions include a large variation of
risk attitudes of skilled labor migrants.
For that purpose, the relative human capital ( ) as well as the optimal ( )
emigration rate are analyzed in relation to changes in risk attitude ( ).
The functions for the relative human capital and its first derivative are given by
(Appendix I, Demo 4):
Since , is positive and the function is increasing with
(Appendix I, Demo 4).
Furthermore, using expressions (2) and (7), it can be easily shown that for any ,
. Equality in relative human capital occurs when
Figure II.3.1 shows the shape of as function of . It has to be noted though that
the function starts at value higher than as is not included. When ,
this is the case of risk neutrality. In addition, the sign of the second derivative of
as function of is positive (Appendix I, Demo 4).
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(7)
(8)