Book Description

My research interest lies in applying microeconomic tools to issues in Industrial Organization and Development Economics. I like doing research which helps me understand something about the world. For example, in my job market paper (Signalling, Reputation and Spinoffs), I study the following environment. Employees often leave their firm to form a new firm (spinoff) of their own. The literature attributes most of these spinoffs to the worker getting a private new idea. In this paper, I propose a different channel for new firm formation based on signalling and reputation concerns. If high ability workers are mistakenly perceived to be low type then they would like to signal their ability to earn more. Consider a two period principal-worker problem where the worker's type is his private knowledge. If the prior belief about the worker's type is low (high type with low probability) then, despite the principal's ability to offer contracts to persuade the worker to stay, there may exist a separating equilibrium where the high type worker signals his ability by forming his own firm. This result provides theoretical support to the findings of Skogstrom (2012), who observed high rates of entrepreneurship amongst Norwegian workers with low education and high ability. When moral hazard is introduced into the environment, I show that the separating equilibrium may generate the highest incentives to work. This may have policy implications for non-compete clauses.My paper on ethnic conflicts and rumours (Ethnic Conflicts, Rumours and an Informed Agent), with Pathikrit Basu and Souvik Dutta) studies coordination and strategic information disclosure in the context of ethnic conflicts. Rumours often precipitate ethnic conflicts and cause immense damage to life and property. There may exist an agent who knows if the rumour is true or false. We analyze a cheap talk game with multiple audiences (ethnicities) to see how this informed agent (b) may influence the outcome of rumours by sending strategic signals. Since b is biased towards her own ethnicity, she finds it difficult to convince the other ethnicity that she is giving them correct information. We show that even if b is known to be biased towards her own ethnicity, peace is possible in equilibrium. Additionally, we prove that there are only three equilibrium outcomes possible in symmetric strategies. Conflict is inevitable in one. The other outcomes have the following features. One, there may be peace whenever b deems it possible. Two, while b gives more informative signals to her own ethnicity, she may misinform a segment of her own ethnicity in equilibrium. In another paper (What's in a Name? Reputation and Monitoring in the Audit Market), my co-author Somdutta Basu and I explore the difference in the incentives in a collective reputation environment as compared to an individual reputation environment in the context of the US Audit industry. Unlike audit reports in some countries, an auditreport issued in the USA does not include the name of the engagementpartner. In December 2015, a new rule was passed (pending approval from the SEC) which requires that the name of the engagement partner be disclosed in audit reports issued after January 2017. We study the incentives of auditors under the two regimes - withand without disclosure of partner names. We argue that if the levelof monitoring within the audit firm remains the same under the tworegimes, then audit quality will be higher under the disclosure regime.However, an unintended consequence of the new rule is that partners (an engagement quality reviewer or a successor partner)have lower incentives to monitor a fellow partner under the disclosureregime. As a result, under some parametric conditions, audit qualitymay be lower if partner names are disclosed. This problem can be addressedthrough a realignment of incentives inside the accounting firm, externalmonitoring from regulators or through increased audit fees.