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

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  • Yasmeen Khwaja

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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.

Suggested Citation

  • Yasmeen Khwaja, 2002. "Should I Stay or Should I Go? Migration under Uncertainty: A Real Options Approach," Economics and Finance Discussion Papers 02-10, Economics and Finance Section, School of Social Sciences, Brunel University.
  • Handle: RePEc:bru:bruedp:02-10
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    File URL: http://www.brunel.ac.uk/329/efwps/02-10.pdf
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