Venezuela's Suboptimal Production

There is no question that Venezuelans are trying to leave Venezuela fast, where “tens of thousands cross the border into Colombia each day”.  People leave everything behind including their homes, their cars, and even their jobs all in the hopes of obtaining a dignified quality of life in neighboring countries. There is clearly a high cost related to leaving Venezuela due to forced migration, and for those who try to sell assets before the big move, they quickly find out their assets are worthless due to hyperinflation. The more Venezuelans leave the country, the easier the move seems but unfortunately this is not true. One would think that the opportunity cost of leaving would decrease as more people leave the country, but there is a high cost related to seeing a country collapse as a result of suboptimal production of goods and services. There is the need to leave but the desire to stay and see the country prosper.

If we were to look at Venezuela as a firm, forced migration to neighboring countries has imposed a negative externality of production on Venezuela. There is a clear brain drain and capital flight as a result of people leaving the country. The more Venezuelans leave the country means unattended production facilities are expropriated by the government who then appoint unexperienced producers as new facility leaders. The marginal social cost is greater than the marginal private cost where in return, this shift causes suboptimal production of goods and services which are below the allocative efficient quantity and is one reason for the collapse of the economy.

For the people leaving however, this is another story; Venezuelans leave in search for a better life into the known because marginal benefit of leaving is greater than marginal cost of staying. The search for a new life can be seen as a positive externality of consumption on the Venezuelans who are leaving since in their mind, nothing can be as bad as the life they were having in Venezuela, which is essentially what fuels the act of forced migration. In union, through moral support the more people leave together means the marginal social benefit will be greater than the marginal private benefit. From this analysis one could say that there is an underproduction of satisfied Venezuelans in the country which has led to an overproduction of Venezuelans migrating to neighboring countries.