Incentivizing Financial Regulators*

Joseph Kalmenovitz

The Review of Financial Studies, 2021, vol. 34, issue 10, 4745-4784

Abstract: 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 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 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.

JEL-codes: H11 J31 J45 K22 M51 M52 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (6)

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