The Role of Risk Aversion and Uncertainty in Individual's Migration Decision

Building on recent advances in the theory of the optimal timing of investment under uncertainty, this paper proposes a stylized theoretical model to study an individual's optimal migration strategy. It shows that, as a result of following the optimal strategy, the individual may choose to delay the migration when the condition appears to be favorable, giving rise to so-called waiting phenomenon observed in the data for Germany following the unification. Using the closed-form solution obtained, it also examines how the duration of the waiting phenomenon is affected by a number of economic factors such as uncertainty with respect to income in Western Germany, the individual's attitude toward risk, etc.