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Wall Street occupations

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  • Axelson, Ulf
  • Bond, Philip

Abstract

Many finance jobs entail the risk of large losses, and hard-to-monitor effort. We analyze the equilibrium consequences of these features in a model with optimal dynamic contracting. We show that finance jobs feature high compensation, up-or-out promotion and long work hours, and are more attractive than other jobs. Moral hazard problems are exacerbated in booms, even though pay increases. Employees whose talent would be more valuable elsewhere can be lured into finance jobs, while the most talented employees might be unable to land these jobs because they are “too hard to manage.”

Suggested Citation

  • Axelson, Ulf & Bond, Philip, 2015. "Wall Street occupations," LSE Research Online Documents on Economics 37448, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:37448
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    File URL: http://eprints.lse.ac.uk/37448/
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    References listed on IDEAS

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    Cited by:

    1. Andrew Ellul & Marco Pagano & Annalisa Scognamiglio, 2017. "Career Risk and Market Discipline in Asset Management," CSEF Working Papers 489, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 02 Apr 2018.
    2. Giovanni Marin & Francesco Vona, 2017. "Finance and the Misallocation of Scientific, Engineering and Mathematical Talent," Documents de Travail de l'OFCE 2017-27, Observatoire Francais des Conjonctures Economiques (OFCE).
    3. Haroon Mumtaz, 2017. "Does uncertainty affect real activity? Evidence from state-level," Working Papers 846, Queen Mary University of London, School of Economics and Finance.
    4. Francesco D'Acunto & Laurent Frésard, 2018. "Finance, Talent Allocation, and Growth," CESifo Working Paper Series 6883, CESifo Group Munich.
    5. Lindbeck, Assar & Weibull, Jörgen, 2015. "Pay Schemes, Bargaining, and Competition for Talent," Working Paper Series 1100, Research Institute of Industrial Economics.

    More about this item

    Keywords

    investment banking; compensation contracts;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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