Migration and the Option Value of Waiting

Michael Burda

No 1229, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Migration is an investment: it involves fixed, unrecoverable costs and uncertain future returns. If migration can be postponed, the option value of doing so may have positive value. Migration may not occur for a range of individuals who would otherwise migrate on a net present value basis. This paper models the migration decision using ideas developed by Pindyck (1991) and Dixit (1992). The option value of waiting is related to the interest rate, fixed costs, and especially uncertainty governing the evolution of income at home and abroad. The `bad news principle' predicts that only unfavourable states of the world will affect the value of the migration option. In a rational intertemporal equilibrium of two regional labour markets, low migration rates may coexist with large or even increasing current wage differentials.

Keywords: Migration; Mobility; Option Value of Waiting (search for similar items in EconPapers)
JEL-codes: J61 (search for similar items in EconPapers)
Date: 1995-08
References: Add references at CitEc
Citations: View citations in EconPapers (108)

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=1229 (application/pdf)

Related works:
Working Paper: Migration and the Option Value of Waiting (1995)
Working Paper: Migration and the Option Value of Waiting (1995)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:1229

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=1229

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().