Reference-Dependent Preferences and Labor Supply: The Case of New York City Taxi Drivers

Henry Farber
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Henry Farber: Princeton University

No 876, Working Papers from Princeton University, Department of Economics, Industrial Relations Section.

Abstract: Recent theoretical work has focused on the importance of reference-dependent preferences. Typically, this work assumes a discontinuity in marginal utility at some base reference level. Marginal utility below this kink in the utility function is higher than marginal utility above the kink. I develop an empirical model of daily labor supply that incorporates reference-dependent preferences, and I apply this model to data on the daily labor supply of New York City taxi drivers. The estimates suggest that there may be a reference level of income on a given day that affects labor supply. However, the reference level varies substantially from day to day for a given driver. This seriously limits the predictive power of the reference point model and undermines the usefulness of the construct of the reference income level as a determinant of labor supply. [JEL classification J22]

Keywords: marginal utility; empirical model; daily labor supply; taxi drivers (search for similar items in EconPapers)
JEL-codes: J22 L92 (search for similar items in EconPapers)
Date: 2004-12
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Citations: View citations in EconPapers (5)

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