Essays in international migration under uncertainty

This thesis applies real options theory, well known in the literature on investment and finance, to examine migration behavior of potential immigrants. In the context of Canadian immigration, evidence suggest that potential migrants holding immigration visas, as well as landed immigrants from different countries take varying amount of time to arrive and finally settle in Canada. This behavior is consistent with the real options theory of investment which states that when an investment project is associated with an irreversible cost and its future payoff is uncertain, then it pays to ‘wait and see’ until substantial uncertainty is resolved and the project is more clearly successful. A two-period-model is developed to investigate how a potential individual migrant would determine the optimum timing of migration. The effects of inter country income correlation, length of immigration visa validity, and the possibilities of return migration are analyzed. Subsequently, the model is extended to the case when migration is a family rather than an individual decision, as is often the case in reality. Under some conditions, risk diversification could motivate the family to send member(s) abroad despite positive option value to waiting. Thus the net waiting time in potential migration, in the face of uncertainty, is dependent on both the strength of the option value and the portfolio motive of risk-averse families. Market correlations can either strengthen or weaken the family's incentives to postpone the migration decision, depending on factor such as risk aversion and market correlation. While negative market correlation encourages diversification, positive market correlation induces a specialization outcome—a scenario where the family does not split and diversity. Canadian immigration data for a number of origin countries (Hong Kong, India and Italy) are employed to test some of the implications of the model. The empirical results are fairly consistent with the real options theory of migration.