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

Yasmeen Khwaja ()

Economics and Finance Discussion Papers from Economics and Finance Section, School of Social Sciences, Brunel University

Abstract: 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.

Pages: 32 pages
Date: 2002-03
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