Most migration flows include observable jumps, a phenomenon that is in line with migration irreversibility. We present a real option model where the migration choice depends on both the wage differential between the host country and the country of origin, and on the probability of full integration into the host country. The optimal migration decision of an individual consists of waiting to migrate in a (coordinated) mass of individuals. The size of the migration flow depends on the behavioural characteristics of the ethnic groups: the more “sociable” they are, the larger the wave and the lower the wage differential required. The second part of the paper is devoted to calibrating the model and simulating migration flows into Italy over the last decade. Our calibration can replicate the migration jumps in the short term. In particular, the calibrated model is able to project the induced labour demand elasticity level of the host country and the behavioural rationale of the migrants.
- migration - real option - labour market - network effect
Available at: http://works.bepress.com/sergio_vergalli/7/