Incentivizing Financial Regulators

Review of Financial Studies, 34(10), October 2021, Pages 4745–4784

117 Pages Posted: 20 Nov 2017 Last revised: 29 Aug 2023

See all articles by Joseph Kalmenovitz

Joseph Kalmenovitz

University of Rochester - Simon Business School

Date Written: March 28, 2019


I study how promotion incentives within the public sector affect financial regulation. I assemble individual data for all SEC enforcement attorneys between 2002 and 2017, including enforcement cases, salaries, and ranks. Consistent with tournament model, attorneys with stronger promotion incentives are involved in more enforcement, especially against severe financial misconduct, and in tougher settlement terms. For identification, I rely on cross-sectional tests within offices and ranks and on exogenous variation in salaries resulting from a rule-based conversion to a new pay system. The findings highlight a novel link between incentives and regulation and show that the regulator's organizational design affects securities markets.

Keywords: public sector performance, pay inequality, tournaments, security market regulation

JEL Classification: H83, J31, J33, J45, K22, M51, M52

Suggested Citation

Kalmenovitz, Joseph, Incentivizing Financial Regulators (March 28, 2019). Review of Financial Studies, 34(10), October 2021, Pages 4745–4784, Available at SSRN: or

Joseph Kalmenovitz (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States


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