Commuting and Migration Decisions under Cost Uncertainty
In recent decades, many countries have experienced suburbanization processes in metropolitan areas that have lead to an increase in urban sprawl by creating a growing polarity between newly formed satellite communities and the central urban area. More than before, work and residence location diverged. In this context, commuting and migration are two fundamental ways of connecting an individual's place of work with his residence. These distinctive mobility modes represent temporary and permanent mobility, respectively. Deciding for any of the two incurs peculiar costs. Commuting requires recurring costs that the individual has to bear without permanently changing his residence. In contrast, migration relocates the place of residence and can therefore prevent periodical mobility costs. Due to this fact, migration can serve as an alternative to commuting in respect to connecting the place of residence with the work place. This paper represents work in progress on the individual decision between commuting and migrating to the place of work in face of uncertain commuting costs. Solutions for two initial states are derived on the basis of the real options theory. The threshold commuting cost levels at which it is optimal for the individual to relocate to the suburb when initially living in the metropolitan center and to relocate to the city center when initially living in the suburb are presented and compared to the classical net present value solution without uncertainty about commuting costs. The effect of uncertainty about the evolution of commuting costs on the optimal decision denotes a remarkable result of this model: higher uncertainty lowers the commuting cost threshold for outmigration to the suburb, while increasing it for inmigration to the city center. On the one hand, individuals initially not commuting but living in the city center deter a possible outmigration even under increasingly unfavorable rental cost conditions. On the other hand, individuals initially living in the suburb are willing to bear significantly higher commuting costs before eventually relocating to the metropolitan center.
|Date of creation:||Sep 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Welthandelsplatz 1, 1020 Vienna, Austria|
Web page: http://www.ersa.org
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Simpson, Wayne, 1980. "A simultaneous model of workplace and residential location incorporating job search," Journal of Urban Economics, Elsevier, vol. 8(3), pages 330-349, November.
- Burda, Michael C, 1995.
"Migration and the Option Value of Waiting,"
CEPR Discussion Papers
1229, C.E.P.R. Discussion Papers.
- 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.
- Michele Moretto & Sergio Vergalli, 2007.
"Marco Fanno" Working Papers
0053, Dipartimento di Scienze Economiche "Marco Fanno".
- Kent Eliasson & Urban Lindgren & Olle Westerlund, 2003. "Geographical Labour Mobility: Migration or Commuting?," Regional Studies, Taylor & Francis Journals, vol. 37(8), pages 827-837.
- Sergio Vergalli, 2008.
"The Role of Community in Migration Dynamics,"
CEIS, vol. 22(3), pages 547-567, 09.
- Jacques Poot, 2007. "Demographic Change and Regional Competitiveness: The Effects of Immigration and Ageing," Population Studies Centre Discussion Papers dp-64, University of Waikato, Population Studies Centre.
- Dixit, Avinash K, 1989.
"Entry and Exit Decisions under Uncertainty,"
Journal of Political Economy,
University of Chicago Press, vol. 97(3), pages 620-38, June.
- Mahmudul Anam & Shin-Hwan Chiang & Lieng Hua, 2008. "Uncertainty and International Migration: An Option Cum Portfolio Model," Journal of Labor Research, Springer, vol. 29(3), pages 236-250, September.
- van Ommeren, Jos & Rietveld, Piet & Nijkamp, Peter, 1997. "Commuting: In Search of Jobs and Residences," Journal of Urban Economics, Elsevier, vol. 42(3), pages 402-421, November.
When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa10p1481. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier)
If references are entirely missing, you can add them using this form.