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New York City Cabdrivers’ Labor Supply Revisited: Reference-Dependent Preferences with Rational-Expectations Targets for Hours and Income

  • Vincent P Crawford
  • Juanjuan Meng

This paper proposes a model of cab drivers' labor supply, building on Henry S. Farber's (2005, 2008) empirical analyses and Botond Koszegi and Matthew Rabin's (2006; henceforth "KR") theory of reference-dependent preferences. Following KR, our model has targets for hours as well as income, determined by proxied rational expectations. Our model, estimated with Farber's data, reconciles his finding that stopping probabilities are significantly related to hours but not income with Colin Camerer et al.'s (1997) negative "wage" elasticity of hours; and avoids Farber's criticism that estimates of drivers' income targets are too unstable to yield a useful model of labor supply. (JEL J22, J31, L92)

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 122247000000002281.

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Date of creation: 28 Jul 2008
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Handle: RePEc:cla:levarc:122247000000002281
Contact details of provider: Web page: http://www.dklevine.com/

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  1. Botond Koszegi & Matthew Rabin, 2007. "Reference-Dependent Risk Attitudes," American Economic Review, American Economic Association, vol. 97(4), pages 1047-1073, September.
  2. Ernst Fehr & Lorenz Götte, 2005. "Do Workers Work More if Wages are High? Evidence from a Randomized Field Experiment," IEW - Working Papers 125, Institute for Empirical Research in Economics - University of Zurich.
  3. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  4. Thierry Post & Martijn J. van den Assem & Guido Baltussen & Richard H. Thaler, 2008. "Deal or No Deal? Decision Making under Risk in a Large-Payoff Game Show," American Economic Review, American Economic Association, vol. 98(1), pages 38-71, March.
  5. Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  6. Henry S. Farber, 2008. "Reference-Dependent Preferences and Labor Supply: The Case of New York City Taxi Drivers," American Economic Review, American Economic Association, vol. 98(3), pages 1069-82, June.
  7. 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.
  8. Botond Koszegi & Matthew Rabin, 2009. "Reference-Dependent Consumption Plans," American Economic Review, American Economic Association, vol. 99(3), pages 909-36, June.
  9. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
  10. Vincent P Crawford & Juanjuan Meng, 2008. "New York City Cabdrivers’ Labor Supply Revisited: Reference-Dependent Preferences with Rational-Expectations Targets for Hours and Income," Levine's Working Paper Archive 122247000000002281, David K. Levine.
  11. Henry S. Farber, 2005. "Is Tomorrow Another Day? The Labor Supply of New York City Cabdrivers," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 46-82, February.
  12. 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.
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