A Brief Description of Some Selected Research Papers

This page contains descriptions of a subset of my papers. My entire publications list of 21 journal articles, a book and two book chapters is available here. My entire list of both published and unpublished research is here.

A. Selected Recent Publications

1."Microfinance Competition: Motivated Microlenders, Double Dipping and Default", Journal of Development Economics (2013),105:86-102 (with P. Roy Chowdhury).

In this paper, we use a Salop-type circular model with a continuum of borrower types and two sources of lender-borrower asymmetric information (the first concerning borrower type, and the second stemming from lenders' inability to observe if their borrowers are borrowing from other lenders, or consuming their loans) to construct a tractable model of double dipping (multiple-loan taking) and default. Our lenders are microfinance institutions (MFIs) that care both about borrower welfare and about their own profits. First, we establish conditions for an equilibrium where some borrowers always take multiple loans and default; we also characterize another no-default equilibrium which exists for different parameter values. Next, we study the impact of increased MFI competition on interest rates, default, and borrower welfare. We find surprising results, for example, we see that (i) even though competition among relatively profit-oriented MFIs decreases interest rates, it nonetheless raises borrower default, (ii) this increased default occurs, paradoxically, because of a reduction in transaction costs experienced by borrowers, and not because of a dilution in the quality of the borrower pool, (iii) competition among MFIs which care more about borrower welfare actually pushes up interest rates. We also obtain comparative static results about a change in MFI orientation, showing that increasing profit orientation may create mission drift, reducing borrower welfare. We derive policy implications regarding a cap on MFI interest rates, and on subsidies to MFIs.

2. "Guns and Crime Revisited", Journal of Economic Behavior and Organization (2013), 94: 1-10 (lead article).

In this paper, I build a theoretical model that explores the links between different empirical findings on crime (a) the drop in U.S crime rates since the nineties, (b) the heavy increase in policing and in sentencing, (c) a drop in gun use by private householders, and (d)a rise in other types of private precautions, such as keeping less cash on hand, or greater reliance on home or car alarms. In my model, I focus on potential victims' tradeoff between different types of precautions, and study the interaction between this tradeoff and the intensity of policing. My results are consistent with observed trends.

3. "Who Will Monitor the Monitors?Informal Law Enforcement and Collusion at Champagne",Journal of Economic Behavior and Organization, (2012),83(2): 261-277.

In this paper, I revisit the question of how large-scale impersonal trade became sustainable in the absence of a legal mechanism that could discipline cheats. An important role in this process was played by authorities at medieval trade fairs like the Champagne Fairs, as shown by Milgrom, North and Weingast (1990). However, this only begs the question of why people should trust such authorities, given their vulnerability to collusion. I tackle this issue, first showing that Milgrom et al's model is not collusion-proof, even if it were extended to allow for the possibility of collusion. Secondly, I construct a model showing how the fairs could have survived, as they did for several centuries, in spite of their vulnerability to collusion. My model incorporates historically relevant features such as competition from rival fairs and the role of traders' guilds. Moreover, my model sheds light on other historical facts such as the gradual shift away from community-based punishments towards individual liability.

4. "Reinterpreting King Solomon's Problem: Malice and Mechanism Design", Journal of Economic Behavior and Organization, (2014),98: 125-132.

In this paper, I argue for a new interpretation of King Solomon's Problem (two mothers claiming the same child) in terms of one of the two claimants being malicious. A malicious claimant places no intrinsic value on the object but derives pleasure from depriving the rival claimant. The traditional literature on King Solomon's problem, in contrast, ignores malice and interprets the problem as one of allocating an indivisible object between a high-value and a low-value claimant. My new interpretation permits a considerably simpler solution. I derive a mechanism that induces truthful revelation following a single round of elimination of weakly dominated strategies, and no monetary transfers. I consider extensions where the malicious claimant also places some positive, but low, value on the object, and also allow for two-sided malice. I discuss several real-life examples, including malicious patents and asset disputes between separating spouses or extended family members.

5. "Crime and Moral Hazard: Does More Policing Necessarily Induce Private Negligence?" Economics Letters, (2012),115(3): 455-459 (with A. Guha).

In this paper, we show that far from inducing potential victims to neglect their safety, an increase in policing can actually induce people to take a higher level of costly precautions against being attacked. We derive conditions under which this happens, in three separate situations.In the first, where individuals may directly spend on private security measures, and may also "diversify" by splitting their assets into spatially separate lots, reducing the prize that can be seized in a single attack. In the second, individuals may diversify but may not spend on direct security measures (for example, due to bans on firearm possession). In the third, individuals can spend on security measures, but cannot diversify, as is the case with an asset that is indivisible, such as an Old Master.

6. "Pirates and Fishermen: Is Less Patrolling Always Bad?" Journal of Economic Behavior and Organization (2012), 81(1): 29-38.

In this paper, I model Somali pirates' time allocation problem between piracy and a non-violent alternative, fishing, whose returns are also sensitive to patrolling intensity. I show that increasing patrolling beyond a threshold can actually lead to an equilibrium with more pirate attacks. Lowering patrolling below this threshold results in an equilibrium where pirate attacks and patrolling costs are both lower. The model helps explain the puzzling fact that pirate attacks had been on the rise in spite of a rise in patrolling intensity; moreover, this did not reflect an inefficiency in patrolling, as patrols were foiling a larger portion of total pirate attacks.

7. "Pirates and Traders:Some Economics of Pirate-Infested Seas",Economics Letters (2011),111(2): 147-150 (with A Guha).

In this paper, we show that even risk-neutral traders have the option of costly "self-insurance" on a "pirate-infested sea" (one where there is an elastic supply of pirates prepared to attack whenever it is profitable to do so). Moreover, if patrolling is high enough, the incentive for traders to self-insure strengthens, so that the combination of private and public precautions can eliminate piracy.

8. "The Persistence of Goodness", Journal of Institutional and Theoretical Economics, (2012),168(3):432-443 (with A. Guha).

In this paper, we derive game theoretic underpinnings of the level of goodness in a population. "Good" people act in a way which is beneficial to others' payoffs, and do so even without the rule of the law or reputational effects. We show that virtue does not die out, even in a Darwinian world of the survival of the fittest; for appropriate parameters, a certain level of good "behavior" emerges as an evolutionarily stable equilibrium. The long run equilibrium proportion of good behavior does not depend on the level of intrinsic goodness.

9. "Borrower Targeting Under Microfinance Competition with Motivated MFIs", Developing Economies, forthcoming (with P. Roy Chowdhury).

This paper is motivated by the observation that even socially motivated MFIs often do not target the poorest of the poor. We examine how increased competition for donor funds among MFIs that only care about borrower welfare affects the poorest borrowers' access to microfinance. We find that borrower targeting depends on intra- borrower inequality, the technology available to borrowers, and the feasibility of double-dipping (taking loans from multiple lenders).Without competition, even a motivated MFI may lend to the not-so-poor in preference to the poor borrowers. If double-dipping is feasible, competition may encourage lending to the poor. The presence of double-dipping is critical for MFI competition to have this positive effect. When double-dipping is feasible, MFI coordination may worsen borrower targeting whenever inequality is intermediate. We discuss policy implications dealing with double dipping, MFI co-ordination and competition.

B. Selected Recent Working Papers

1. "Vulnerability to Exposure as a Determinant of Market Structure", under review.

Focusing on repeated games with imperfect public information and moral hazard, I show that if the probability of the informed party being detected and exposed increases in the number of its transactions, a natural monopoly tends to emerge even in the absence of traditional barriers to entry. I apply this to settings where the informed party is a "seller" of (i) "credibility-enhancing services" (such as an external auditor, vulnerable to collusion with client firms whose credibility they are supposed to boost), (ii) experience goods, particularly those where failure has disastrous consequences (nuclear reactors, planes, engines), or (iii) services where negligence or dishonesty may be detected ex-post, eg in the hospital industry or the insurance industry. Subsidiary results demonstrate that while auditors may lack bargaining power at the hiring stage, they will obtain considerable bargaining power while demanding bribes. Moreover, if an auditor does collude, he does so with his entire clientele.

2. "Grandparents as Guards: Inheritance and Post-Marital Residence in a World of Uncertain Paternity", under revision for the Economic Journal.

I build a game theoretic model to explain why (a) a majority of agrarian societies developed a combination of patrilineal inheritance (through the male line), patrilocality (with a young couple moving in with the husband's parents), and high "monitoring" of young women's sexual behavior by in-laws, and (b) a significant minority nonetheless developed the opposing triad of matrilineal inheritance, matrilocality (where women lived on in their parental homes after marriage) and relative sexual freedom for women. I build on anthropological evidence and my model involves an intergenerational game where productive effort on the family farm is chosen by young adults while the level of sexual monitoring exerted on co-resident young women is chosen by the old. I demonstrate that my hypothesis is superior to alternative explanations that bypass the factor of paternity uncertainty.

3. "Endogenizing Giving, Reciprocity and Inequality Aversion: Cross-Cultural Differences in Ultimatum Games", under review.

Not only do players of ultimatum games not exhibit rational maximizing behavior, but there is also considerable cross- cultural difference in these players' behavior patterns. Motivated by this, I use a costly conflict game to study how different types of behavior may optimally emerge in different societies, depending on parameter values like the initial distribution of strengths, the cost of conflict and the extent of uncertainty.

C. Selected Older Publications

1."Trade,Growth and Increasing Returns to Infrastructure:The Role of the Sophisticated Monopolist", Review of International Economics (2009),17(5):1053-1065 (with A Guha).

In this paper, we model the role of infrastructure providers' beliefs in the ability of an economy to graduate from being a primary product exporter to an exporter of manufactures. Equilibrium in international trade with increasing returns in infrastructure depends on whether the infrastructure provider is “naïve” or sophisticated. A monopolist produces infrastructure under decreasing cost using fixed equipment. Unlike similar work, we derive a unique closed-economy equilibrium. In a small open economy, with “naïve” infrastructure provider(s), multiple equilibria obtain. The industrial export potential of the economy depends on unexhausted economies of scale, and equilibria are possible where manufactures are exported despite an autarky price higher than the world price. With a sophisticated infrastructure provider, even an open economy has a unique equilibrium, which, at least as long as economies of scale are unexhausted, also involves more industrialization than the “naïve” equilibria. Access to the unlimited world market is necessary for significant industrialization but is not sufficient: one may also require “Schumpeterian” entrepreneurs, monopolists with a panoramic vision of the economy and of their catalytic role in it.

2. "Target Saving in an Overlapping Generations Model",B.E Journal of Macroeconomics (2008),8(1):1-24(with A Guha).

In this paper, we derive microfoundations to explain the observed fact that many people save towards a fixed target level of retirement resources, neither more nor less. We then find, using an overlapping generations model, that such saving then leads to multiple and unstable equilibria. Under static expectations, it also leads to a well- defined dynamics, including possible historical traps, implosions involving ever-diminishing capital stock and ever-increasing interest rates, and the feasibility of optimal one-time interventions.

3."Maids and Mistresses:Migrating Maids and Female Labor Force Participation",Economics Bulletin (2007),10(11):1-9.

In this paper, I examine the impact of immigrant maids on formal workforce participation by local women in a model with a competitive factory sector and a household sector which uses both immigrant maids and family labor. I find some surprising results. Relaxing immigration restrictions on maids does not necessarily increase the labor force participation of these maids' mistresses. Reducing taxes on hiring immigrant maids may not increase female formal labor force participation; instead, imposing such taxes, where there are none, might serve to increase female work force participation, depending on immigrants' and locals' relative propensities to consume household sector output.

4."Female Labor Force Participation and Labor-Saving Gadgets",Journal of International Trade and Economic Development (2005),14(4):483-495.

I show under what conditions women would migrate out of the household sector into formal sector jobs, in response to increased ability to use labour saving household gadgets, which raise the productivity of female labour engaged in household tasks. I model a small open economy with three outputs: one labour-intensive manufactured export (cloth), one capital-intensive intermediate good (gadgets) and one non-traded ‘household-sector good’ (meals) which requires both female labour and household gadgets for production. A terms-of-trade improvement capturing greater world demand for labour-intensive manufactured exports enables greater adoption of labour-saving household gadgets in response to changing relative prices. If the elasticity of substitution between female labour and household gadgets exceeds a threshold, this will result in women migrating from the household to formal sector employment. What matters is not the actual date of invention of these labour-saving appliances (female labour force participation may not grow significantly until long after) but their increased adoption by the small economy in response to changing relative prices.