Entry and Exit Strategies in Migration Dynamics

In this paper, we use a real option framework in order to study the role of combined entry and exit strategies in migration. The paper’s aim consists in investigating migrants’ behaviour and in particular their duration of stay in the host country. Our framework shows two threshold levels: the first triggers the migration choice, while the second triggers the return to the country of origin. The difference between these two thresholds defines a region of inaction (hysteresis) i.e. the length of the immigrant’s stay in the host country (duration). Our theoretical results show that: (a) the phenomenon of hysteresis is amplified by ethnic communities both in entry and in exit cases; and (b) migration policies that attempt to exacerbate entry could increase duration of immigrants and the migration stock in the host country. Furthermore, the community could reduce the minimum wage level required to trigger both exit and entry. This fact could explain why we sometimes see migration inflows with a low wage differential and also with underemployment.