New York City Cab Drivers' Labor Supply Revisited: Reference-Dependent Preferences with Rational-Expectations Targets for Hours and Income

Crawford, Vincent P.; Meng, Juanjuan

doi:10.1257/aer.101.5.1912

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American Economic Review: Vol. 101 No. 5 (August 2011)

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New York City Cab Drivers' Labor Supply Revisited: Reference-Dependent Preferences with Rational-Expectations Targets for Hours and Income

Article Citation

Crawford, Vincent P., and Juanjuan Meng. 2011. "New York City Cab Drivers' Labor Supply Revisited: Reference-Dependent Preferences with Rational-Expectations Targets for Hours and Income." American Economic Review, 101(5): 1912-32.

DOI: 10.1257/aer.101.5.1912

Abstract

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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Authors

Crawford, Vincent P. (U Oxford and U CA, San Diego)
Meng, Juanjuan (Peking U)

JEL Classifications

J22: Time Allocation and Labor Supply
J31: Wage Level and Structure; Wage Differentials
L92: Railroads and Other Surface Transportation