Manning, Suzanne B.; DeLorme Jr., Charles D.; Kamerschen, David R.
Abstract
While a generalized utility maximization approach to migration decision-making is not innovative, the principal extensions of this paper involve the search for an instrument capable of measuring changes in utility levels consistent with all preferences (i.e., with all forms of utility functions), requiring only data on observed behaviour. Our approach is to construct a Location-Specific Utility Index (LSUI), whose component variables serve as proxies for the arguments in households’ utility functions. The LSUI is calculated for households at two times (before and after the migration decision) and then compared to produce a utility change index (the Delta Index) for each household. The approach is distinctive in that the Delta Index measures only the direction of the change in a household’s utility level due to its migration. The ordinal nature of utility rankings thus is not violated through aggregation over households or cross-sectional comparisons of utility levels. Our database is the Panel Study of Income Dynamics (PSID), a longitudinal nation-wide sample survey conducted by the University of Michigan’s Institute for Social Research. It provides information on more than two hundred variables per household per year. The objective is to test empirically whether migration is appropriately modeled as utility-generating behaviour. The testable hypothesis is formulated as follows: “Assuming constant household preferences and expansion of the household’s feasible set over time, the household’s utility level is greater following the migration decision.” Stepwise discriminate analysis is used to measure the contributions of the component variables to the move decision. The conclusion reached through the stepwise discriminate analysis is that the LSUI and the Delta Index must be revised to include only six components: quality of life, proximity to relatives and cultural roots, net present value of future earnings, real household consumption activity by households to maximize utility.
