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Uncertainty and International Migration: An Option-cum-Portfolio Model
with Shin-Hwan Chiang and Lieng Hua
Journal of Labor Research September, 2008
Abstract: Real option theory suggests that individual migration may be delayed beyond the Marshallian trigger since the option value to waiting may be sufficiently positive in the face of uncertainty. In this paper we present a model where a multi-member family is the decision- making unit. Therefore, migration may now be partly driven by the desire to diversify the location of family members in order to reduce income risk. Our two-period model incorporates both the option and the portfolio motive as the triggers determining family's optimum timing of migration. The optimum delay before migration is shown to depend on the uncertainty parameters of the model including risk aversion and income volatility. We use aggregate Canadian data on immigrant visa issuance and landing to capture average waiting period for migrants from Hong Kong.
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