Should I Stay or Should I Go? Migration under Uncertainty: A Real Options Approach

This paper considers migration as an investment decision. It develops a continuoustime stochastic model to explain the optimal timing of migration, in the presence of ongoing uncertainty over wage differentials. The results show that individuals prefer to wait before migrating, even if the present v...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Author Khwaja, Yasmeen
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2002
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Summary:This paper considers migration as an investment decision. It develops a continuoustime stochastic model to explain the optimal timing of migration, in the presence of ongoing uncertainty over wage differentials. The results show that individuals prefer to wait before migrating, even if the present value of the wage differential is positive, because of the uncertainty and the sunk costs associated with migration. An increased degree of risk aversion discourages migration, and interacts with the other variables and parameters affecting migration by exacerbating their effects.