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Slutsky Equation and Negative Elasticity of Labor Supply: Behavioral Bias or Optimal Consumption-Leisure Choice?

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  • Sergey MALAKHOV

    (Pierre-Mendès-France University, France)

Abstract

One of the applications of the prospect theory is the behavioral phenomenon of the negative elasticity of the individual labor supply. This paper argues that the negative elasticity of labor supply can be understood better with the help of the interpretation of the Slutsky equation with regard to the common consumption-leisure choice. The interpretation of the Slutsky equation corresponds to the empirical evidence that leisure is a net complement for an important part of consumption.

Suggested Citation

  • Sergey MALAKHOV, 2014. "Slutsky Equation and Negative Elasticity of Labor Supply: Behavioral Bias or Optimal Consumption-Leisure Choice?," Expert Journal of Economics, Sprint Investify, vol. 2(2), pages 80-84.
    • Handle: RePEc:exp:econcs:v:2:y:2014:i:2:p:80-84
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    References listed on IDEAS

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    1. Colin Camerer & Linda Babcock & George Loewenstein & Richard Thaler, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 407-441.
    2. Cook, Philip J, 1972. "A 'One Line' Proof of the Slutsky Equation," American Economic Review, American Economic Association, vol. 62(1), pages 139-139, March.
    3. Eldar Shafir & Peter Diamond & Amos Tversky, 1997. "Money Illusion," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 341-374.
    4. Sergey Malakhov, 2014. "Satisficing Decision Procedure and Optimal Consumption-Leisure Choice," International Journal of Social Science Research, Macrothink Institute, vol. 2(2), pages 138-151, September.
    5. Sergey MALAKHOV, 2014. "Sunk Costs Of Consumer Search: Economic Rationality Of Satisficing Decision," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 5(1), pages 56-62.
    6. John S. Chipman & Jean-Sébastien Lenfant, 2002. "Slutsky's 1915 Article: How It Came to Be Found and Interpreted," History of Political Economy, Duke University Press, vol. 34(3), pages 553-597, Fall.
    7. Sergey MALAKHOV, 2013. "Money Flexibility And Optimal Consumption-Leisure Choice Under Price Dispersion," Theoretical and Practical Research in the Economic Fields, ASERS Publishing, vol. 4(1), pages 77-88.
    8. Sergey MALAKHOV, 2014. "Slutsky Equation and Negative Elasticity of Labor Supply: Behavioral Bias or Optimal Consumption-Leisure Choice?," Expert Journal of Economics, Sprint Investify, vol. 2(2), pages 80-84.
    9. Rousslang, Donald J & Tokarick, Stephen P, 1995. "Estimating the Welfare Cost of Tariffs: The Roles of Leisure and Domestic Taxes," Oxford Economic Papers, Oxford University Press, vol. 47(1), pages 83-97, January.
    10. Vincent Barnett, 2006. "Chancing an interpretation: Slutsky's random cycles revisited," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 13(3), pages 411-432.
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    Cited by:

    1. Sergey MALAKHOV, 2014. "Slutsky Equation and Negative Elasticity of Labor Supply: Behavioral Bias or Optimal Consumption-Leisure Choice?," Expert Journal of Economics, Sprint Investify, vol. 2(2), pages 80-84.
    2. Malakhov, Sergey, 2019. "Consumption-leisure complementarity versus income elasticity of demand under equilibrium price dispersion," MPRA Paper 92971, University Library of Munich, Germany.

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    More about this item

    Keywords

    Slutsky equation; prospect theory; labor supply; consumption-leisure choice;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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