Migration and the Option Value of Waiting
AbstractMigration 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.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1229.
Date of creation: Aug 1995
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Other versions of this item:
- Burda,M.C., 1995. "Migration and the Option Value of Waiting," Papers 597, Stockholm - International Economic Studies.
- M. C. Burda, 1995. "Migration and the Option Value of Waiting," SFB 373 Discussion Papers 1995,58, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
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