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Daily Needs, Income Targets and Labor Supply: Evidence from Kenya

  • Pascaline Dupas
  • Jonathan Robinson

Many studies suggest that daily income earners behave as if they have daily income targets. Less work has examined the determinants of the targets themselves. Using data on labor supply, shocks, and self-reported cash needs from 257 bicycle taxi drivers in Western Kenya, we provide evidence that many individuals treat their daily cash need as the day's target. We conjecture that in a physically demanding job, workers may have an incentive to quit early and so set a personal rule of "earning enough for the day's need" as an internal commitment device to provide effort. This heuristic is more common among less educated workers and has substantial welfare costs: greater variance in hours worked is associated with worse health, and we estimate that workers would earn 5% more by working a set number of hours each day (more if their wage elasticity were positive).

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19264.

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Date of creation: Aug 2013
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Handle: RePEc:nbr:nberwo:19264
Note: DEV LS
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  1. Botond Koszegi & Matthew Rabin, 2005. "A Model of Reference-Dependent Preferences," Levine's Bibliography 784828000000000341, UCLA Department of Economics.
  2. Pascaline Dupas & Jonathan Robinson, 2009. "Savings Constraints and Microenterprise Development: Evidence from a Field Experiment in Kenya," NBER Working Papers 14693, National Bureau of Economic Research, Inc.
  3. 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.
  4. 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.
  5. Pascaline Dupas & Sarah Green & Anthony Keats & Jonathan Robinson, 2012. "Challenges in Banking the Rural Poor: Evidence from Kenya's Western Province," NBER Working Papers 17851, National Bureau of Economic Research, Inc.
  6. 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.
  7. Matthew Rabin, 2001. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Method and Hist of Econ Thought 0012001, EconWPA.
  8. Timothy J. Halliday, 2009. "Intra-Household Labor Supply, Migration, and Subsistence Constraints in a Risky Environment: Evidence from Rural El Salvador," Working Papers 200920, University of Hawaii at Manoa, Department of Economics.
  9. Pascaline Dupas & Jonathan Robinson, 2013. "Why Don't the Poor Save More? Evidence from Health Savings Experiments," American Economic Review, American Economic Association, vol. 103(4), pages 1138-71, June.
  10. Dupas, Pascaline & Robinson, Jonathan, 2012. "The (hidden) costs of political instability: Evidence from Kenya's 2007 election crisis," Journal of Development Economics, Elsevier, vol. 99(2), pages 314-329.
  11. Dohmen, Thomas J. & Falk, Armin & Huffman, David & Sunde, Uwe, 2010. "Are risk aversion and impatience related to cognitive ability?," Munich Reprints in Economics 20063, University of Munich, Department of Economics.
  12. Suresh de Mel & David McKenzie & Christopher Woodruff, 2008. "Returns to Capital in Microenterprises: Evidence from a Field Experiment," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1329-1372, November.
  13. Kirk B. Doran, 2013. "Are Long-term Wage Elasticities of Labor Supply More Negative than Short-term Ones?," Working Papers 020, University of Notre Dame, Department of Economics, revised Jan 2013.
  14. Raj Chetty, 2009. "Bounds on Elasticities with Optimization Frictions: A Synthesis of Micro and Macro Evidence on Labor Supply," NBER Working Papers 15616, National Bureau of Economic Research, Inc.
  15. Jonathan Robinson & Ethan Yeh, 2011. "Transactional Sex as a Response to Risk in Western Kenya," American Economic Journal: Applied Economics, American Economic Association, vol. 3(1), pages 35-64, January.
  16. Shlomo Benartzi & Richard Thaler, 2007. "Heuristics and Biases in Retirement Savings Behavior," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 81-104, Summer.
  17. Daniel J. Benjamin & Sebastian A. Brown & Jesse M. Shapiro, 2006. "Who is “Behavioral”? Cognitive Ability and Anomalous Preferences," Levine's Working Paper Archive 122247000000001334, David K. Levine.
  18. Tanjim Hossain & John A. List, 2009. "The Behavioralist Visits the Factory: Increasing Productivity Using Simple Framing Manipulations," NBER Working Papers 15623, National Bureau of Economic Research, Inc.
  19. Ned Augenblick & Muriel Niederle & Charles Sprenger, 2013. "Working Over Time: Dynamic Inconsistency in Real Effort Tasks," NBER Working Papers 18734, National Bureau of Economic Research, Inc.
  20. Ernst Fehr & Lorenz Goette, 2007. "Do Workers Work More if Wages Are High? Evidence from a Randomized Field Experiment," American Economic Review, American Economic Association, vol. 97(1), pages 298-317, March.
  21. 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.
  22. 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.
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