TY  - JOUR
AU  - Chetty,Raj
TI  - A Bound on Risk Aversion Using Labor Supply Elasticities
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12067
PY  - 2006
Y2  - March 2006
UR  - http://www.nber.org/papers/w12067
L1  - http://www.nber.org/papers/w12067.pdf
N1  - Author contact info:
Raj Chetty
Department of Economics
Harvard University
1805 Cambridge St.
Cambridge, MA 02138
Tel: 617-744-9492
E-Mail: chetty@fas.harvard.edu
AB  - This paper shows that existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model. I derive a formula for the coefficient of relative risk aversion (g) in terms of (1) the ratio of the income elasticity of labor supply to the wage elasticity and (2) the degree of complementarity between consumption and labor. I bound the degree of complementarity using data on consumption choices when labor supply varies randomly across states. Using labor supply elasticity estimates from thirty-three studies, I find a mean estimate of g = 1. I then show that generating g > 2 would require that wage increases cause sharper reductions in labor supply than estimated in any of the studies.
ER  -