Publisher： John Wiley & Sons Inc
E-ISSN： 1540-6261|70|5|1949-1996
ISSN： 0022-1082
Source： THE JOURNAL OF FINANCE, Vol.70, Iss.5, 2015-10, pp. : 1949-1996
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Abstract
ABSTRACTMany 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.”
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