Gains from migration with a simple non‐linear incentive compatible compensation

Abstract This paper examines the conditions under which Pareto gains can arise from allowing migration into a duty‐free zone in which, by paying a fee, domestic households can supply their labor at international wages. A duty‐free zone can be considered a non‐linear redistribution scheme for compensation of losers from migration that forces workers to self‐select. This scheme is incentive compatible, as it is based on information about the entire distribution of workers in the population, and does not require knowledge of individual information.