Wall Street Occupations




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    • Ulf Axelson is with London School of Economics and SIFR, and Philip Bond is with the University of Washington. A previous version of this paper circulated under the title “Investment Banking Careers.” We thank Bruno Biais (the Editor); two anonymous referees; Wouter Dessein; Paolo Fulghieri; Andrew Hertzberg; Camelia Kuhnen; Alan Morrison; Christian Opp; Paul Oyer; Uday Rajan; David Robinson; Ibola Schindele; and seminar audiences at the American Economic Association meetings, BI Oslo, Boston University, Carnegie Mellon University, University of Chicago, Columbia, Cornell, the European Finance Association meetings, University of Exeter, ESMT Berlin, the Federal Reserve Bank of Philadelphia, the Federal Reserve Bank of Minneapolis, the Financial Intermediation Research Society meetings, University of Frankfurt (Goethe), University of Glasgow, HEC Paris, University of Houston, IE, IESE, Jackson Hole Finance Group conference, London Business School, London School of Economics, McGill, MIT, Michigan State University, University of Minnesota, NBER, Ohio State University, Oxford University, SIFR/SSE, SSE Riga, Temple, UT Austin, Stanford, and Toulouse IDEI for helpful comments and suggestions. Any errors are our own.


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.”