JUE insight: Moving cost magnitudes in moving cost models

The internal migration literature has estimated a wide range of moving costs, including some that are several times larger than annual income. How should economists interpret this estimate? I show that in standard models, average moving costs can be decomposed into an “information” term and a “returns to migration” term. The information term is proportional to the Shannon entropy of next period’s location minus the Shannon information of staying in the same location. In simple models, the information term is much larger than the returns to migration term; in some cases, the returns to migration term is zero. Therefore, average moving costs are a helpful statistic about the model’s predictive power regarding future moves but are not invariant to seemingly innocuous choices of the modeler.