The (Option-)Value of Overstaying

Asylum seekers with a rejected application account for three out of five illegal migrants in Germany. The objective of this paper is to calculate asylum seekers’ ex ante returns on overstaying. 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 and translates it into a generalized Roy model with uncertainty about the final sector choice. As an important contribution to the literature, the paper proposes mild conditions for nonparametric identification of several objects of interest, including population distribution of ex ante pecuniary benefits, 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. 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 is an important component 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.