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Loss Aversion and Labor Supply

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  • Lorenz Goette
  • David Huffman
  • Ernst Fehr

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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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 178.

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Handle: RePEc:zur:iewwpx:178

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Keywords: loss aversion; labor supply;

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  1. 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.
  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.
  3. Henry S. Farber, 2003. "Is Tomorrow Another Day? The Labor Supply of New York City Cab Drivers," Working Papers 852, Princeton University, Department of Economics, Industrial Relations Section..
  4. Ernst Fehr & Lorenz Gotte, 2002. "Do workers work more if wages are high? Evidence from a randomized field experiment," Natural Field Experiments 00240, The Field Experiments Website.
  5. 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..
  6. Camerer, Colin & Babcock, Linda & Loewenstein, George & Thaler, Richard, 1996. "Labor Supply of New York City Cab Drivers: One Day At A time," Working Papers 960, California Institute of Technology, Division of the Humanities and Social Sciences.
  7. 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).
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