Working Papers

A Bumpy Job Ladder Model of Executive Compensation. Bo Hu, Nov 2022.

This paper assesses the impact of managerial labor market competition on executive incentive contracts. I develop a dynamic contracting model that features moral hazard, search frictions and poaching offers. The model generates a job ladder along which executives get promoted internally and transit toward larger companies. The ladder is bumpy in that how high the next rung depends on the manager’s effort, the realized productivity and size of the poaching firm. The model is applied to two exercises. First, I show that poaching generates a new source of incentives that explains a newly documented empirical puzzle — the firm-size incentive premium. Second, the estimated model is employed to quantitatively account for the trend of executive compensation over decades.

Marketmaking Middlemen. Pieter Gautier, Bo Hu and Makoto Watanabe, The RAND Journal of Economics.

This paper develops a model in which market structure is determined endogenously by the choice of intermediation mode. There are two representative modes of intermediation that are widely used in real-life markets: one is a middleman mode where an intermediary holds inventories which he stocks from a wholesale market for the purpose of reselling to buyers; the other is a market-making mode where an intermediary offers a platform for buyers and sellers to trade with each other. We show that a marketmaking middleman, who adopts the mixture of these two intermediation modes, can emerge in a directed search equilibrium and discuss the implications of this on the market structure.



I presented Marketmaking Middlemen in following conferences/seminars:
Symposium in Honor of Jean Tirole, Den Haag, Dec 2014; Search and Matching workshop, Bristol, Mar 2015; Search and Matching Annual Conference, Aix-en-Provence, May 2015 (poster); EARIE, Munich, July 2015; Search and Matching Annual Conference, Amsterdam, May 2016 (poster); EEA-ESEM, Geneva, August 2016.

I presented Managerial Labor Market Competition and Incentive Contracts in following conferences/seminars:
Search and Matching Annual Conference, Cambridge, May 2018 (poster); Belgian Financial Research Forum, Brussels, June 2018; Rotterdam Executive Conference, Rotterdam, June 2018; Queen Mary PhD Workshop, London, June 2018; 26th Finance Forum, Santander, July 2018; Finance Department Seminar, Vrije Universiteit, Amsterdam, October 2018; Economics Department Seminar, Vrije Universiteit, Amsterdam, October 2018; Job Talks in universities, December 2018 to January 2019; Macroeconomics Workshop, SUFE, Shanghai, May 2021.