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Loss Aversion and Labor Supply

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Author Info
Goette, Lorenz (University of Zurich)
Huffman, David (IZA Bonn)
Fehr, Ernst (University of Zurich, CEPR and IZA Bonn)

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Abstract

In many occupations workers’ labor supply choices are constrained by institutional rules regulating labor time and effort provision. This renders explicit tests of the neoclassical theory of labor supply difficult. Here we present evidence from studies examining labor supply responses in “neoclassical environments” in which workers are free to choose when and how much to work. Despite the favorable environment the results cast doubt on the neoclassical model. They are, however, consistent with a model of reference dependent preferences exhibiting loss aversion and diminishing sensitivity.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 927.

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Length: 23 pages
Date of creation: Nov 2003
Date of revision:
Handle: RePEc:iza:izadps:dp927

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Related research
Keywords: labor supply; intertemporal substitution; loss aversion; reference dependent preferences;

Other versions of this item:

Find related papers by JEL classification:
J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
B49 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Other

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Camerer, Colin, et al, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 407-41, May.
    Other versions:
  2. Henry Farber, 2003. "Is Tomorrow Another Day? The Labor Supply of New York Cab Drivers," NBER Working Papers 9706, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Fehr, Ernst & Götte, Lorenz, 2004. "Do Workers Work More When Wages Are High? Evidence from a Randomized Field Experiment," IZA Discussion Papers 1002, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Ernst Fehr & Lorenz Götte, 2005. "Do Workers Work More if Wages are High? Evidence from a Randomized Field Experiment," IEW - Working Papers iewwp125, Institute for Empirical Research in Economics - IEW. [Downloadable!]
    Other versions:
  5. Gerald S. Oettinger, 1999. "An Empirical Analysis of the Daily Labor Supply of Stadium Vendors," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 360-392, April. [Downloadable!] (restricted)
  6. Henry S. Farber, 2003. "Is Tomorrow Another Day? The Labor Supply Of New York Cab Drivers," Working Papers 110, Princeton University, Department of Economics, Center for Economic Policy Studies.. [Downloadable!]
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This page was last updated on 2009-11-23.

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