Intertemporal Substitution at Work ?

Preliminary. Do not distribute. In this paper, we report the results from a large-scale field experiment with bicycle messengers. We increased the messengers comission rate, their sole form of compensation by 25 percent during four weeks. We find a positive and large intertemporal elasticity for the supply of hours. In response to the wage increase, messengers work roughly 30 percent more shifts than the control group. However, on average, messengers exerted less effort while working, even though the economic model dictates that they also work at a higher pace. It seems that messengers evaluate ”a day at a time”. While working on the higher wage, they were tempted to work less hard, because they earned significantly more during these days than they otherwise would have. In order to provide direct evidence for this type of isolation of decisions, we ran a follow-up experiment to determine whether messengers isolate decision in other contexts. Consistent with out hypothesis, the results show that only those messengers who isolate decision in the follow-up experiement reduced effort while on the higher wage, whereas the others (about 40 percent of the subjects) kept working at their usual pace.