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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)

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.

Suggested Citation

  • Yasmeen Khwaja, 2000. "Should I Stay or Should I Go? Migration under Uncertainty: A New Approach," Working Papers 113, Department of Economics, SOAS, University of London, UK.
  • Handle: RePEc:soa:wpaper:113
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    File URL: http://www.soas.ac.uk/economics/research/workingpapers/file28864.pdf
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    References listed on IDEAS

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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. Avinash Dixit, 1991. "Analytical Approximations in Models of Hysteresis," Review of Economic Studies, Oxford University Press, vol. 58(1), pages 141-151.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    4. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
    5. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
    6. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
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