Finance Papers

Document Type

Journal Article

Date of this Version

11-10-2016

Publication Source

The Journal of Finance

Volume

71

Issue

6

Start Page

2781

Last Page

2808

DOI

10.1111/jofi.12372

Abstract

We propose a labor market model in which financial firms compete for a scarce supply of workers who can be employed as either bankers or traders. While hiring bankers helps create a surplus that can be split between a firm and its trading counterparties, hiring traders helps the firm appropriate a greater share of that surplus away from its counterparties. Firms bid defensively for workers bound to become traders, who then earn more than bankers. As counterparties employ more traders, the benefit of employing bankers decreases. The model sheds light on the historical evolution of compensation in finance.

Copyright/Permission Statement

This is the peer reviewed version of the following article: GLODE, V. and LOWERY, R. (2016), Compensating Financial Experts. The Journal of Finance, 71: 2781–2808. which has been published in final form at 10.1111/jofi.12372. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving http://olabout.wiley.com/WileyCDA/Section/id-820227.html#terms.

Embargo Date

11-10-2018

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Date Posted: 27 November 2017

This document has been peer reviewed.