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

Yasmeen Khwaja
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Yasmeen Khwaja: Department of Economics, SOAS University of London, UK

No 113, Working Papers from Department of Economics, SOAS University of London, UK

Abstract: This paper considers migration as an investment decision. We develop a continuoustime stochastic model to explain the optimal timing of migration, in the presence of ongoing uncertainty over wage differentials. Our results reveal that households 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. Households are less likely to migrate into rural areas with a less predictable income profile.

Pages: 41 pages
Date: 2000-10
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Persistent link: https://EconPapers.repec.org/RePEc:soa:wpaper:113

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