Real Options and Migration

This work uses advances in Real Options
Theory to develop a theoretical model of the migration
decision under uncertainty. Prospective migrants face a
future that evolves in new and unexpected ways, and the
flexibility in responding to new conditions is an important
consideration in the original decision to migrate. Real
Options theory allows us to value this strategic
flexibility as the future unfolds. Two specific instances
of migration are analyzed within this framework: a
prospective Mexican migrant considering work in the United
States without legal documents and a rural worker in a
developing economy moving to find work in the city. The
uncertainty considered in these host environments stem from
various sources such as the evolution of wages, the
possibility of being apprehended and deported back to
Mexico, the possibility of acquiring legal status for an
undocumented worker or of finding formal sector work for an
informal worker. The theoretical model for Mexico to U.S.
migration is computationally solved and its implications
are studied under different policy alternatives.