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Flexible Work Hours and Dynamic Labor Supply: Evidence from Taxi Drivers

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Abstract: We estimate an optimal stopping model for taxicab drivers labor supply decisions, using a large sample of shifts for drivers of New York City taxicabs. Our results show that both ``behavioral and ``neoclassical wage responses are present in the data, with the behavioral income-targeting story explaining shorter shifts, and the standard neoclassical model explaining longer shifts. Hence these findings partially reconcile the divergent reduced-form results in the existing literature. A methodological contribution of this paper is to develop a new closed-form estimator for dynamic discrete choice models in a semiparametric setting, in which the distribution of utility shocks is left unspecified.

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