The Option-Value of Overstaying

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The objective of this paper is to calculate asylum seekers’ ex ante returns on overstaying when their application is rejected. It takes advantage of a unique survey designed to permit estimation of a structural model about the decision to overstay. The proposed model sees this decision as a utility maximization problem with uncertainty about the final choice. The paper proposes mild conditions for nonparametric identification of several objects of interest, including population distribution of ex ante non-pecuniary costs, surpluses, and option-value created by the chance of becoming regularized in the future. Estimation is conducted using a semiparametric estimation procedure on a sample of Afghan asylum seekers. Ex ante surpluses of overstaying are predominantly positive but very heterogeneous in the population. The pecuniary benefits explain a modest part of these surpluses. In contrast, the option-value and the cost associated with a deportation are important components of the expected returns. Afghan asylum seekers are ready to spend a long time with a precarious status to eventually obtain the right to stay and the amenities associated with it.