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Loss Aversion and Labor Supply

Author

Listed:
  • Lorenz Goette

    (University of Zurich,)

  • David Huffman

    (Institute for the Study of Labor,)

  • Ernst Fehr

    (University of Zurich and CEPR,)

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. (JEL: J22, B49) Copyright (c) 2004 The European Economic Association.

Suggested Citation

  • Lorenz Goette & David Huffman & Ernst Fehr, 2004. "Loss Aversion and Labor Supply," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 216-228, 04/05.
    • Handle: RePEc:tpr:jeurec:v:2:y:2004:i:2-3:p:216-228
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    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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