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

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  • Yasmeen Khwaja

    (Department of Economics, SOAS, University of London, UK)

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    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.

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    File URL: http://www.soas.ac.uk/economics/research/workingpapers/file28864.pdf
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    Bibliographic Info

    Paper provided by Department of Economics, SOAS, University of London, UK in its series Working Papers with number 113.

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    Length: 41 pages
    Date of creation: Oct 2000
    Date of revision:
    Handle: RePEc:soa:wpaper:113

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    Web page: http://www.soas.ac.uk/economics/
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    1. Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1992. "Waiting to Invest: Investment and Uncertainty," The Journal of Business, University of Chicago Press, vol. 65(1), pages 1-29, January.
    2. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    3. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    4. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
    5. Dixit, Avinash, 1991. "Analytical Approximations in Models of Hysteresis," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 141-51, January.
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