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Testing for the Option Value of Migration

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  • Locher, Lilo

    (Federal Monopoly Commission, Bonn)

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.

Suggested Citation

  • Locher, Lilo, 2001. "Testing for the Option Value of Migration," IZA Discussion Papers 405, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp405
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    References listed on IDEAS

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    1. Burda, Michael C., 1993. "The determinants of East-West German migration: Some first results," European Economic Review, Elsevier, vol. 37(2-3), pages 452-461, April.
    2. Michael C. Burda & Wolfgang Härdle & Marlene Müller & Axel Werwatz, 1998. "Semiparametric analysis of German East-West migration intentions: facts and theory," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(5), pages 525-541.
    3. Locher, Lilo, 2001. "The Determination of a Migration Wave Using Ethnicity and Community Ties," IZA Discussion Papers 346, Institute of Labor Economics (IZA).
    4. Harry Coccossis & Peter Nijkamp, 2007. "Regional Science in Perspective," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2007(2), pages 137-140.
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    Cited by:

    1. Michael Landesmann & Isilda Mara, 2013. "The Steadiness of Migration Plans and Expected Length of Stay – Based on a Recent Survey of Romanian Migrants in Italy," wiiw Working Papers 104, The Vienna Institute for International Economic Studies, wiiw.
    2. Stephen Drinkwater & Michał Garapich, 2013. "Migration Plans and Strategies of Recent Polish Migrants to England and Wales: Do They Have Any and How Do They Change?," Norface Discussion Paper Series 2013023, Norface Research Programme on Migration, Department of Economics, University College London.
    3. Sergio Vergalli, 2008. "The Role of Community in Migration Dynamics," LABOUR, CEIS, vol. 22(3), pages 547-567, September.
    4. Sergio Vergalli, 2006. "Dynamics in Immigration Community," Working Papers ubs0613, University of Brescia, Department of Economics.
    5. Klaus Nowotny, 2014. "Cross-border commuting and migration intentions: the roles of risk aversion and time preference," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 8(2), June.

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    More about this item

    Keywords

    Migration; option theory; ethnic Germans;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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