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Compensation in the Financial Sector: Are all Bankers Superstars?

  • Célérier, C.
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    Based on a survey among French engineers, I find that employees in the financial sector are highly paid. I also find large pay differences within the sector and that a large share of compensation is variable. I consider three potential models accounting for these facts: a model of superstars (Rosen, 1981), a model of compensating wage differential (Lucas, 1977), and a model of moral hazard (Laffont and Martimort, 2002). I investigate and test the empirical implications of these models. I conclude that the model of superstars fits better the data than the models of moral hazard and compensating wage differential.

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    File URL: http://www.banque-france.fr/uploads/tx_bdfdocumentstravail/DT294.pdf
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    Paper provided by Banque de France in its series Working papers with number 294.

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    Length: 49 pages
    Date of creation: 2010
    Date of revision:
    Handle: RePEc:bfr:banfra:294
    Contact details of provider: Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
    Web page: http://www.banque-france.fr/

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    1. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
    2. Paul Oyer, 2004. "Why Do Firms Use Incentives That Have No Incentive Effects?," Journal of Finance, American Finance Association, vol. 59(4), pages 1619-1650, 08.
    3. Xavier Gabaix & Augustin Landier, 2006. "Why Has CEO Pay Increased So Much?," NBER Working Papers 12365, National Bureau of Economic Research, Inc.
    4. Marianne Bertrand & Sendhil Mullainathan, 2001. "Are Ceos Rewarded For Luck? The Ones Without Principals Are," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 901-932, August.
    5. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-64, October.
    6. Raghuram G. Rajan & Luigi Zingales, 2001. "The Influence of the Financial Revolution on the Nature of Firms," NBER Working Papers 8177, National Bureau of Economic Research, Inc.
    7. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 503-30, May.
    8. Lucas, Robert E B, 1977. "Hedonic Wage Equations and Psychic Wages in the Returns to Schooling," American Economic Review, American Economic Association, vol. 67(4), pages 549-58, September.
    9. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, June.
    10. Martins, Pedro S., 2004. "Industry wage premia: evidence from the wage distribution," Economics Letters, Elsevier, vol. 83(2), pages 157-163, May.
    11. Hsuan-Chi Chen & Jay R. Ritter, 2000. "The Seven Percent Solution," Journal of Finance, American Finance Association, vol. 55(3), pages 1105-1131, 06.
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