Does the Target Matter? The Dynamic Labor Decision of Fishermen (Job market paper)

Abstract

This paper explains whether and how labor decisions are shaped by reference-dependence. When preference shapes human behavior fundamentally, I question the implication of the misspecification of the preference. A seemingly inefficient behavior under the expected utility theory, for example, longer work in a day of a bad outcome, may be explained by the reference-dependence alternatively. This paper overcomes two limitations in previous literature. First, I propose and estimate a dynamic model under reference-dependent preference. It considers all future income opportunities, while literature considers only the next period using a static model. Second, novel data on commercial halibut fishermen enables me to observe the subjective targets, which literature lacks. Since the reference governs the labor supply in the neighborhood of the reference, this information enables me to implement a more reliable test of reference-dependence.