The Allocation of Effort Under Uncertainty : The Case of Risk-Averse Behavior

This paper analyzes the labor supply decision of a single economic agent within the expected utility framework. Two formulations of the problem are considered: pure income uncertainty and wage rate uncertainty. In each case, the effects on the labor supply decision of changes in both expected returns and the dispersion of returns (about a constant mean) are investigated. Arguments concerning the "disincentive effects" of uncertainty are shown not to be unambiguously supported by theory