The Allocation of Effort under Uncertainty: The Case of Risk-Averse Behavior

This paper analyzes the labor supply decision of a single economic agent within the expected utility framework. Two formulations of the problem are considered: pure income uncertainty and wage rate uncertainty. In each case, the effects on the labor supply decision of changes in both expected return...

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Bibliographic Details
Published in:The Journal of political economy 1973-03, Vol.81 (2), p.376-385
Main Authors: Block, M. K., Heineke, J. M.
Format: Article
Language:English
Subjects:
Economic theory
Economic uncertainty
Expected utility
Income effect
Labor supply
Modeling
Political economy
Political risk
Risk aversion
Risk aversion preference
Substitution effect
Uncertainty
Utility functions
Wage rate
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Summary:This paper analyzes the labor supply decision of a single economic agent within the expected utility framework. Two formulations of the problem are considered: pure income uncertainty and wage rate uncertainty. In each case, the effects on the labor supply decision of changes in both expected returns and the dispersion of returns (about a constant mean) are investigated. Arguments concerning the "disincentive effects" of uncertainty are shown not to be unambiguously supported by theory.
ISSN:0022-3808
1537-534X
DOI:10.1086/260033