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Wall Street Occupations
Author(s) -
AXELSON ULF,
BOND PHILIP
Publication year - 2015
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12244
Subject(s) - boom , moral hazard , work (physics) , promotion (chess) , compensation (psychology) , business , finance , hazard , economics , incentive , microeconomics , engineering , political science , mechanical engineering , psychology , chemistry , organic chemistry , environmental engineering , politics , law , psychoanalysis
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.”