A Microeconomic Model of Migration

In the first part of the paper we give a consistent formal model of migration decision making under incomplete information. It is shown that the migration problem can be regarded as a particular problem in the theory of stochastic dynamic programming. We discuss the Gittins index method as a helpful algorithm in deriving optimal migration decisions. In the second part of the paper we apply our theoretical results to two empirically relevant phenomena. We explain the “attractiveness of city lights” in rural/urban migration as a result of optimal decision making under incomplete information by using arguments that are different from Todaro’s explanation. Further, we give an explanation for the high correlation between inbound and outbound migration that is often observed in particular regions in developing countries.