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Testing for the Option Value of Migration

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  • Lilo Locher

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. [IZA Discussion Paper No. 405]

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  • Lilo Locher, 2010. "Testing for the Option Value of Migration," Working Papers id:2763, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2763
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    References listed on IDEAS

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    1. 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.
    2. Locher, Lilo, 2001. "The Determination of a Migration Wave Using Ethnicity and Community Ties," IZA Discussion Papers 346, Institute of Labor Economics (IZA).
    3. 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.
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    Keywords

    Migration; option theory; ethnic Germans;
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