published in: Journal of the European Economic Association, 2004, 2 (2-3), 216-228
In many occupations workers’ labor supply choices are constrained by institutional rules
regulating labor time and effort provision. This renders explicit tests of the neoclassical theory
of labor supply difficult. Here we present evidence from studies examining labor supply
responses in “neoclassical environments” in which workers are free to choose when and how
much to work. Despite the favorable environment the results cast doubt on the neoclassical
model. They are, however, consistent with a model of reference dependent preferences
exhibiting loss aversion and diminishing sensitivity.
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