Research

Publications

Contracting for Innovation under Ambiguity  (Slides) (Short Slides) 

Games and Economic Behavior, 2022. DOI: https://doi.org/10.1016/j.geb.2022.01.015

Abstract: Outsourcing of research is a large and growing trend in knowledge-intensive industries such as biotech, software industries. The smaller research-oriented contractees specialize in handling research specific uncertainties and ambiguities, and the contracts are typically very short term. I model innovation as an ambiguous stochastic process, and assume that the commercial firms and research labs differ in their attitude towards ambiguity. I characterize the sequence of short-term contracts between the ambiguity averse contractor and the ambiguity neutral contractee doing the research, and examine how the special features of the optimal contract facilitate ambiguity sharing. In this model, the commercial firm's ambiguity aversion acts as a commitment device and mitigates the dynamic moral hazard problem. This results in monotonically decreasing investment flow and prevents equilibrium delay. Also, experimentation stops earlier than the policymaker deems optimal, and there is a range of posterior beliefs for which the contracting parties choose to liquidate the project even after being granted a patent. I discuss the policy implications of these results, examining how patent law affects innovation produced in these research alliances.

Delegation using Forward Induction   (pdf) (Slides)

International Game Theory Review, 2021. DOI: https://doi.org/10.1142/S0219198921500225

Abstract: This paper explores a potentially important role of delegation: as a signal to sustain cooperation in coordination games. I consider a static principal-agent model with two tasks, one of which requires cooperation between the principal and the agent. If there is asymmetric information about the agent's type, the principal with a private belief that the agent is a good type can delegate the  first task as a signal of his private belief. This equilibrium is supported by the forward induction argument. I conduct laboratory experiments to test these theoretical predictions and to examine the role of information in equilibrium selection. I  find that delegation is used only sometimes to facilitate cooperation; however, when the subjects have information about past sessions, there is a statistically significant increase in the use of delegation. This evidence suggests that information matters in equilibrium selection in Bayesian games.

Instructions

Working Papers

Virtue of Simplicity in Asymmetric Auctions (with Shraman Banerjee)  (Slides)

Submitted

In single object auctions when bidders are asymmetric, the Myersonian optimal auction is difficult to implement. In such situations, Hartline and Roughgarden (2009) proposes a "simple" auction that revenue approximates the optimal auction. This paper experimentally studies the performance of the simple auction vis-a-vis the optimal auction in terms of revenue generation. We find that under weak asymmetry, there is no statistically significant difference in the revenue generated through simple auction and optimal auction. With increasing asymmetry, simple auction generates less revenue, but the approximation is much closer than what the theory predicts. Simple auction consistently has a lower revenue. We analyse the discouragement and competitive effects due to the optimal auction rules. 

Student Feedback and Performance Evaluation in Sequential Learning (with Parimal Bag)

How to conduct performance evaluation of lecturers in universities? With modules structured vertically moving from lower level to higher ups, learning externalities run in one direction. The planner has access only to the student feedback, which is a noisy signal of the effort and standard of the instructor, but the feedback is also sequential in nature. We show that ignoring this externality and designing a bonus structure treating the courses as exogenous leads to loss in welfare. We solve for the optimal contract design under this vertical externality. 

Wisdom of the Crowds: Social Learning with Online Ratings  (with Shraman Banerjee) 

Despite a large number of reviews nowadays freely available online, the "wisdom of the crowds" in the form of these reviews do not always lead to efficient social learning. I build a continuous time framework to analyse the dynamics of online reviews. Given the behavioral assumption that the buyers leave feedback only if their experience with the product is very different from their prior expectation, I show the range of beliefs for which reviews can not efficiently aggregate information. I find the optimal buyer sequencing if the sellers can determine the sequence.

Venture Capital Investment under Ambiguity

Abstract: A central feature of Venture Capital financing is the extensive use of control rights as an instrument as part of the dynamic contract signed at the beginning of the project. In this paper, I present an explanation of the shift in control rights based on the contextual ambiguity present in such financing environment. In a multiple priors model with ambiguity-averse capitalist and ambiguity-neutral entrepreneur, I show how control rights shift to mitigate possible hold-up issues. As the signal precision falls, venture capitalist acquires control rights more often.  

Wisdom of the Crowd vs Expert: Online Review Context

Submitted

Abstract: This paper analyzes the self-reporting bias present in online reviews and discusses the welfare implications of this bias. It endogenizes the process in which reviews are generated and shows that reviewers’ incentive to be "pivotal" leads to only extreme reviews being posted, which is an empirically observed phenomenon. If consumers update their belief about the product using Bayes rule, failing to correct for this bias results in a loss of expected utility. However, if consumers can adjust for the bias, even in the presence of the bias, a large number of reviews is preferred by the consumers compared to the expensive expert opinion. If consumers do not take this bias into account, the value of "wisdom of the crowd" is lower.

The Private Solution Problem: a 37-nation Study (with the Collective Decision-Making and Culture Lab)

Submitted

Abstract: Individuals facing collective action problems are often considered to have two options: contribute towards a shared solution or free-ride. But they might also choose a third option of investing in a private solution such as local climate change adaptation. Experimental research on the dynamics of collective action problems has rarely accounted for the availability of private solutions and has been conducted in single-country contexts (with few exceptions), thereby lacking generalisability. Here we show with the results of an experimental collective action problem featuring wealth inequalities, shared and private solutions, and (n = 5,200) participants from 37 countries that there are both universalities and differences in behaviour across cultures. We report that participants endowed with higher income consistently choose the private solution more often than those endowed with lower income and consistently contribute a lower proportion of their wealth towards the shared solution. We also show that certain factors such as early progress towards the shared solution underpin group success across the world. Lastly, we report that different sources of wealth inequalities (luck vs. merit) often generate meritocratic beliefs about fairness but rarely affect preferences for private vs. shared solutions. Our findings hold important policy implications for collective action problems where private solutions exist. They also highlight cultural differences in fairness, individualism, and group coordination that can facilitate effective solutions to problems requiring international cooperation such as climate change, migration, and pandemics.

Work in Progress

Asymmetric Auctions with Anonymous Reserve Prices (with Shraman Banerjee)

Communicating Bias (with Srijita Ghosh and Suraj Shekhar)

Research Statement