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

Author

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  • Henry S. Farber

    (Princeton University)

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]

Suggested Citation

  • Henry S. Farber, 2004. "Reference-Dependent Preferences and Labor Supply: The Case of New York City Taxi Drivers," Working Papers 876, Princeton University, Department of Economics, Industrial Relations Section..
    • Handle: RePEc:pri:indrel:497
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    Citations

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    Cited by:

    1. 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.
    2. Teck H. Ho & Noah Lim & Colin Camerer, 2005. "Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics," Levine's Bibliography 784828000000000476, UCLA Department of Economics.
    3. Wolfgang Pesendorfer, 2006. "Behavioral Economics Comes of Age: A Review Essay on Advances in Behavioral Economics," Journal of Economic Literature, American Economic Association, vol. 44(3), pages 712-721, September.
    4. Wolfgang Pesendorfer, 2006. "Behavioral Economics Comes of Age," Levine's Bibliography 321307000000000038, UCLA Department of Economics.
    5. Marie Connolly, 2008. "Here Comes the Rain Again: Weather and the Intertemporal Substitution of Leisure," Journal of Labor Economics, University of Chicago Press, vol. 26(1), pages 73-100.

    More about this item

    Keywords

    marginal utility; empirical model; daily labor supply; taxi drivers;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • L92 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Railroads and Other Surface Transportation

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