An extended rationality model of social norms in labour supply

Abstract

This paper presents a microeconomic model of the impacts of social norms on individual labour supply behaviour. This model is based on the theory of social custom of Akerlof (1980). The impacts of the social norms are modelled by specific arguments in the utility function related to the reputation and self-esteem of an individual. For particular gender-specific specifications of the social norm behaviour and an additive quadratic utility function the comparative statics of female and male (utility maximizing) labour supply is derived. Moreover, for the case of female labour force participation in the Netherlands some econometric evidence is given, and for the case of male labour supply it is explained why it may be completely rational to work full-time even when pecuniary gains are small or absent. Finally, the paper discusses a long-run model for an endogenous dynamics of social norms in female labour supply.