Question

What is the equilibrium condition of the modified Harris-Tadoro Model? Please explain this final condition maths formula with your intuition.

Answer 1

The Harris–Todaro model, named after John R. Harris and Michael Todaro, is an economic model developed in 1970 and used in development economics and welfare economics to explain some of the issues concerning rural-urban migration. The main assumption of the model is that the migration decision is based on expected income differentials between rural and urban areas rather than just wage differentials. This implies that rural-urban migration in a context of high urban unemployment can be economically rational if expected urban income exceeds expected rural income
The formal statement of the equilibrium condition of the Harris–Todaro model is as follows:

Rural to urban migration causes overcrowding and unemployment in cities as migration rates exceed urban job creation rates, with many people ending up in unproductive or underproductive employment in the informal sector. However, even though this migration creates unemployment and induces informal sector growth, this behavior is economically rational and utility-maximizing in the context of the Harris–Todaro model. As long as the migrating economic agents have complete and accurate information concerning rural and urban wage rates and probabilities of obtaining employment, they will make an expected income-maximizing decision.