Cross-border commuting and migration intentions: the roles of risk aversion and time preference

Klaus Nowotny

doi:10.5709/ce.1897-9254.137

Abstract

This article analyses the effects of individual risk aversion and time preference on cross-border mobility intentions using a theoretical and empirical model. The paper extends the previous literature by considering both cross-border commuting and migration as modes of mobility. The theoretical model shows that risk aversion has a negative effect on the willingness to migrate and to commute while the effect of time preference depends on expectations about the devel opment of future wages in the home country and abroad. The empirical model, which is based on a multinomial probit regression, confirms the hypotheses regarding risk aversion and shows that the rate of time preference has a nonlinear effect on migration and commuting intentions consistent with expectations of higher real wage growth in the home country than abroad. The analysis sheds light on how time preference and risk aversion influence mobility decisions. This is especially important for integrating border regions in the European Union, in which both migration and commuting are possible.

Highlights

The decision to become internationally mobile is always a decision under uncertainty surrounding the future states of important factors such as wage levels in the home country and abroad
If individuals expect prices abroad to be lower than home-country prices, higher levels of risk aversion should decrease the willingness to commute across a border less than the willingness to migrate
This article analyses the effects of time preference and risk aversion on the willingness to become internationally mobile by considering both migration and cross-border commuting as modes of mobility

Summary

Introduction

Pindyck, 1991) to migration decisions (see O’Connell, 1997; Locher, 2001; Wang and Wirjanto, 2004; Anam, Chiang, & Hua, 2008, to name just a few), or papers on the effects of individual risk attitudes on migration decisions (see Heitmueller, 2005; Kan, 2003)—this literature has not considered cross-border commuting as an alternative to migration though commuting plays an important role in border regions between European Union (and neighbouring non-EU) countries. The effect may, be nonlinear if potentially mobile individuals expect wages in the home country to exceed wages abroad in the near future In this case, lower discount rate levels should correspond with higher propensities towards both migrating and commuting, though the effect will become negative as τ approaches a value of one. If individuals expect prices abroad to be lower than home-country prices, higher levels of risk aversion should decrease the willingness to commute across a border less than the willingness to migrate. These empirical hypotheses can be tested using a multinomial probit model in three dimensions derived from Equations (4), (6) and (7). In contrast to the more common multinomial logit model, the multinomial probit model allows for an arbitrary covariance structure between response categories and does not require the restrictive “independence of irrelevant alternatives” assumption (see Maddala, 1983 or Train, 2009 for a recent discussion)

Data and variables

Empirical analysis

Findings

Conclusions