I show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model. I derive a formula for the coefficient of relative risk aversion (γ) in terms of the ratio of the income elasticity of labor supply to wage elasticity and degree of complementarity between consumption and labor. I bound the degree of complementarity using data on consumption choices when labor supply varies across states. Using labor supply elasticity estimates, I find a mean estimate of [Formula: see text], then show generating γ > 2 requires that wage increases cause sharper labor supply reductions.

The Effects of the 2003 Dividend Tax Cut on Corporate Behavior: Interpreting the Evidence by Raj Chetty and Emmanuel Saez. Published in volume 96, issue 2, pages 124-129 of American Economic Review, May 2006