Slutsky Equation and Negative Elasticity of Labor Supply: Behavioral Bias or Optimal Consumption-Leisure Choice?

One of the applications of the prospect theory is the behavioral phenomenon of the negative elasticity of the individual labor supply. This paper argues that the negative elasticity of labor supply can be understood better with the help of the interpretation of the Slutsky equation with regard to the common consumption-leisure choice. The interpretation of the Slutsky equation corresponds to the empirical evidence that leisure is a net complement for an important part of consumption.
JEL ClassificationD11


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Pierre-Mendes-France University, France


Sergey Malakhov, Ph.D., Applied Economics, Pierre-Mendès-France University, Grenoble, France

Article History

Received: July 23, 2014
Accepted: July 31, 2014
Available Online: August 5, 2014

Cite Reference

Malakhov, S., 2014. Slutsky Equation and Negative Elasticity of Labor Supply: Behavioral Bias or Optimal Consumption-Leisure Choice? Expert Journal of Economics, 2(2), pp. 80-84

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