Testing for the Option Value of Migration

Lilo Locher ()
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Lilo Locher: Federal Monopoly Commission, Bonn

No 405, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Using uncertainty about the future returns to migration, the option value theory of migration can explain low migration rates in spite of huge wage differences. This paper presents the theory in a simple two-period framework and uses ethnic Germans in the CIS to find empirical support for it. Since July 1990, ethnic German immigration from Eastern Europe and the CIS is restricted by means of a protracted application mechanism. In our data on ethnic Germans in Russia and Kazakhstan in the 1990s, we use information on the stage of the application process, migration intentions and ethnicity to construct close proxies for the option value of postponing migration and for migration costs. The link between the two is shown to be as theory predicts.

Keywords: Migration; option theory; ethnic Germans (search for similar items in EconPapers)
JEL-codes: D81 J15 J61 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2001-11
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Citations: View citations in EconPapers (8)

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