An interesting political problem that has been heavily discussed lately is the brain drain problem.  It is possible, however, to look at this from a game theory perspective.  Suppose that there are two types of workers in a developing country:  high and low productivity workers.  Now, suppose that both travel to a developed country to receive education.  When they return, however, employers cannot distinguish high productivity workers from low productivity ones.  Because workers in the developed country will not want to hire low productivity workers, they all return home.  However, the number of high productivity workers that return home varies by domestic wage level:  if they can earn more in the developed country, they will stay there, but if they can earn more in the developing country, they will return home.  Employers in the developing country are now faced with a dilemma: how much should employees be paid?  Because of their imperfect knowledge, they pay a standard wage to every worker equal to the average of what they would be willing to pay low productivity and high productivity workers weighted by the number of each in the job market.  Thus, while employers in the developing country may be willing to pay the high productivity workers way more than the developed country, their wages at home are diluted by the low productivity workers because of the imperfect information.  This phenomenon leads to the “brain drain,” where highly productive, educated workers remain abroad in order to earn higher wages than they could at home, leaving the developing country with a weak labor supply.

                This problem is evident in Central American and Pacific countries, whereby individuals who receive a secondary education in the US elect to remain the US rather than return home.  This stalls economic growth in the developing countries, while lowering wages in the US because of the smaller job market.  Viem Kwok and Hayne Leland of the American Economic Review examine how extensive the brain drain is by using game theory.  The majority of immigrants into developing countries actually have a tertiary or secondary education.  While they are paid less in the US than they would be paid back home because of the competitive job market, employers cannot distinguish them from low productivity workers and thus, offer lower wages than they would be willing to pay with perfect information.   While this game theory analysis greatly simplifies the situation, the solutions remain the same. 

There are several ways to increase domestic wages in order to attract highly skilled workers back into the country.  The first way to do so is to increase the number of highly skilled workers or decrease the number of highly skilled workers in the job market.  This will “improve” the labor supply, making the employers more confident that a given worker they hire is a high productivity worker.  Because of this, they would be more willing to offer higher wages as a whole.  A second way to attract more workers back would be to increase the wage they are willing to offer low and high productivity workers.  This would increase the weighted mean salary and attract more workers.  Finally, employers could attract more highly skilled workers by improving information so that they can make the distinction between low and high skilled workers.  If they can identify which type a given worker is, they can offer high productivity workers higher wages than in the developed country.  This would get rid of the wage dilution and improve the quality of workers in the developing country.

Kwok, Viem and Hayne Leland.  “An Economic Model Of The Brain Drain.”  The American Economic Review, Vol. 72, No. 1 (Mar., 1982), pp. 91-100