Bankers and Regulators
University of Minnesota - Twin Cities
University of Pennsylvania - Finance Department; University of Pennsylvania - The Wharton School
April 23, 2013
We propose a labor market model in which agents with heterogenous ability levels choose to work as bankers or as financial regulators. When workers extract intrinsic benefits from working in regulation (such as public-sector motivation or human capital accumulation), our model jointly predicts that bankers are, on average, more skilled than regulators and their compensation is more sensitive to performance. During financial booms, banks draw the best workers away from the regulatory sector and misbehavior increases. In a dynamic extension of our model, young regulators accumulate human capital and the best ones switch to banking mid-career.
Number of Pages in PDF File: 51
Keywords: Financial regulation, banking, fraud, intrinsic benefit, career choice
JEL Classification: G28, J24, J45working papers series
Date posted: November 21, 2010 ; Last revised: April 26, 2013
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
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