Making Reference-Dependent Preferences: Evidence from Door-to-Door Sales (JMP)

Abstract

The standard and reference-dependent models of labor supply make opposing claims about worker decisionmaking that have important implications. This paper uses novel, high-frequency administrative data from a sales company to test for reference-dependent daily labor supply in a new setting: door-to-door sales. I show evidence that recent expectations, which theory predicts act as important references, are selected by workers based on long-run objectives and form around the lump-sum bonuses paid by the firm at the end of the sales season. I test for reference-dependent labor supply around expectations using a regression kink and discontinuity design. I find that extensive margin labor supply shifts downward substantially at a worker’s expectations-based reference, consistent with the reference-dependent model with loss aversion. Long-run goal setting combined with reference dependence supports the theory that expectations-based references must be based on optimally planned choices. It also supports the theory that narrow goal setting and reference dependence together may act as a commitment device. These results have broad implications for how firms motivate their workers and show how long-run contract incentives can drive short-run labor supply choices.

Publication
Job Market Paper
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Samuel Dodini
PhD Candidate

My broad research interests include the economics of labor markets, incorporating insights from behavioral economics, occupational licensing, monopsony power, education, public finance, and urban economics.