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Tridib Sharma

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Michiru Nagatsu

University of Helsinki

University of Alicante / Universidad de Alicante

Justin Caouette

Bridgewater State University

The Australian National University

Indera Syahrul Mat Radzuan

Universiti Tun Hussein Onn Malaysia

Natalia Montinari

Lund University

Landmark University

Javier Cárdenas

Universidad San Sebastián

Mark Anthony Quintos

De La Salle University

Dragos Simandan

Brock University

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Papers by Tridib Sharma

Providing Managerial Incentives: Do Benchmarks Matter?

... Santa Teresa 930 Mexico City 10700. ... For analytical tractability we pose these questions i... more ... Santa Teresa 930 Mexico City 10700. ... For analytical tractability we pose these questions in a setting where both the client and the manager are risk neutral.1 In this framework, Heinkel and Stoughton&amp;amp;#x27;s (1994) model shows that benchmarking is optimal (in the class of linear ...

Portfolio delegation under short-selling constraints

Economics Working Papers, Jun 1, 2003

In this paper we study delegated portfolio management when the manager's ability to short-sell is... more In this paper we study delegated portfolio management when the manager's ability to short-sell is restricted. Contrary to previous results, we show that under moral hazard, linear performance-adjusted contracts do provide portfolio managers with incentives to gather information. The risk-averse manager's optimal effort is an increasing function of her share in the portfolio's return. This result affects the risk-averse investor's optimal contract decision. The first best, purely risk-sharing contract is proved to be suboptimal. Using numerical methods we show that the manager's share in the portfolio return is higher than the first best share. Additionally, this deviation is shown to be: (i) increasing in the manager's risk aversion and (ii) larger for tighter short-selling restrictions. When the constraint is relaxed the optimal contract converges towards the first best risk sharing contract.

Money-Back Guarantees

Health Insurance in Rural India

Economic and Political Weekly, Oct 22, 2005

Page 1. Health Insurance in Rural India This paper examines whether consumption expenditure of ho... more

Optimal contracts when enforcement is a decision variable: A comment. Authors' reply

Econometrica, 2003

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, a... more JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. This paper analyzes choice-theoretic costly enforcement in an intertemporal contracting model with a differentially informed investor and entrepreneur. An intertemporal contract is modeled as a mechanism in which there is limited commitment to payment and enforcement decisions. The goal of the analysis is to characterize the effect of choice-theoretic costly enforcement on the structure of optimal contracts. The paper shows that simple debt is the optimal contract when commitment is limited and costly enforcement is a decision variable (Theorem 1). In contrast, stochastic contracts are optimal when agents can commit to the ex-ante optimal decisions (Theorem 2). The paper also shows that the costly state verification model can be viewed as a reduced form of an enforcement model in which agents choose payments and strategies as part of a perfect Bayesian Nash equilibrium.

Enforcement and Firm Finance

This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. We ... more This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. We construct a model of enforcement which shows the following: (i) Firm default due to inability to pay and unwillingness to pay are equilibrium phenomena that arise endogenously and co-exist. (ii) The parameters that characterize enforcement have a highly non-linear influence on firm finance. (iii) Equilibrium credit rationing can occur for plausible parameter values. (iv) We identify a new type of credit rationing that is inherent in the underlying legal system. (iv) We provide complete characterizations of the effect of the enforcement parameters on the contract interest rate and the bankruptcy probability. These results help explain recent puzzles in empirical evidence on how the legal environment affects financial structure.

Secret Deliberations

SSRN Electronic Journal, 2000

The Effect of Enforcement on Firm Finance

This paper analyzes how an enforcement mechanism that resembles a court af- fects firm finance. W... more This paper analyzes how an enforcement mechanism that resembles a court af- fects firm finance. We construct a model of enforcement which shows the following: (i) Firm default due to inability to pay and unwillingness to pay are equilibrium phe- nomena that arise endogenously and co-exist. (ii) The parameters that characterize enforcement have a highly non-linear influence on firm finance. (iii) Equilibrium credit rationing can occur for plausible parameter values. (iv) We identify a new type of credit rationing that is inherent in the underlying legal system. (iv) We provide complete characterizations of the effect of the enforcement parameters on the contract interest rate and the bankruptcy probability. These results help explain recent puzzles in empirical evidence on how the legal environment affects financial structure.

The Nutrition Curve and Intra Household Allocation of Calories

by Tridib Sharma and S. Pratap

Enforcement and Firm Finance

This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. We ... more This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. We construct a model of enforcement which shows the following: (i) Firm default due to inability to pay and unwillingness to pay are equilibrium phenomena that arise endogenously and co-exist. (ii) The parameters that characterize enforcement have a highly non-linear influence on firm finance. (iii) Equilibrium credit rationing can occur for plausible parameter values. (iv) We identify a new type of credit rationing that is inherent in the underlying legal system. (iv) We provide complete characterizations of the effect of the enforcement parameters on the contract interest rate and the bankruptcy probability. These results help explain recent puzzles in empirical evidence on how the legal environment affects financial structure.

Coordination in Teams

by Tridib Sharma and Ricard Torres

Essays for Anjan Mukherji, 2011

Axiom of Monotonicity: An Experimental Test

SSRN Electronic Journal, 2000

The Axiom of Monotonicity (AM) is a necessary condition for a number of expected utility represen... more The Axiom of Monotonicity (AM) is a necessary condition for a number of expected utility representations, including those obtained by , and Anscombe and Auman (1963). The paper reports on experiments that directly test AM by eliminating strategic uncertainty, context, and peer e¤ects. In one treatment, the state space is simple to formulate. Here we do not observe violations of AM. When the state space is a bit more obscure, we …nd signi…cant violations of AM. JEL codes: D9, C7, C9.

Enforcing Property Rights Through Reputation: Mexico's Early Industrialization, 1878–1913

The Journal of Economic History, 2001

ABSTRACT Mexico s initial industrialization was based on firms that were grouped : that is, linke... more ABSTRACT Mexico s initial industrialization was based on firms that were grouped : that is, linked to other firms through close affiliations with a common bank. Most explanations for the prevalence of groups are based on increasing returns or missing formal capital markets. We propose a simpler explanation that better fits the facts of Mexican history. In the absence of secure property rights, tangible collateral could not credibly be offered to creditors; but there remained the possibility of using reputation as a form of intangible collateral. In such circumstances, firms had incentives to group together for purposes of mutual monitoring and insurance.

Durable Goods, Coasian Dynamics, and Uncertainty: Theory and Experiments

Journal of Political Economy, 2001

This paper presents a model in which a durable goods monopolist sells a product to two buyers. Ea... more This paper presents a model in which a durable goods monopolist sells a product to two buyers. Each buyer is privately informed about his own valuation. Thus all players are imperfectly informed about market demand. We study the monopolist's pricing behavior as players' uncertainty regarding demand vanishes in the limit. In the limit, players are perfectly informed about the downward-sloping demand. We show that in all games belonging to a fixed and open neighborhood of the limit game there exists a generically unique equilibrium outcome that exhibits Coasian dynamics and in which play lasts for at most two periods. A laboratory experiment shows that, consistent with our theory, outcomes in the Certain and Uncertain Demand treatments are the same. Median opening prices in both treatments are roughly at the level predicted and considerably below the monopoly price. Consistent with Coasian dynamics, these prices are lower for higher discount factors. Demand withholding, however, leads to more trading periods than predicted.

Debt contracts and cooperative improvements

Journal of Mathematical Economics, 2005

In this paper we consider a dynamic game with imperfect information between a borrower and lender... more In this paper we consider a dynamic game with imperfect information between a borrower and lender who must write a contract to produce a consumption good. In order to analyze the game, we introduce the concept of a coalitional perfect Bayesian Nash equilibrium (cPBNE). We prove that equilibria exist and are efficient in a precise sense. Deterministic contracts that resemble debt are optimal for a general class of economies. The cPBNE solution concept captures both the non-cooperative aspect of firm liquidation and the cooperative aspect of firm restructuring. JEL Classification Numbers: C70, D60, G30, K40

Interest rate discrimination, tenancy and cost sharing

Indian Growth and Development Review, 2011

Purpose – The aim of this paper is to develop a theory of sharecropping with cost sharing after a... more Purpose – The aim of this paper is to develop a theory of sharecropping with cost sharing after allowing for an explicit role of a creditor. In the tenancy literature, the prevalence of sharecropping has remained an important issue. While most contributions have focussed only on output sharing, very few have studied the issue of cost sharing. Besides, the existing

The effect of enforcement on firm finance

This paper analyzes how an enforcement mechanism that resembles a court af- fects firm finance. W... more This paper analyzes how an enforcement mechanism that resembles a court af- fects firm finance. We construct a model of enforcement which shows the following: (i) Firm default due to inability to pay and unwillingness to pay are equilibrium phe- nomena that arise endogenously and co-exist. (ii) The parameters that characterize enforcement have a highly non-linear influence on firm finance.

Bankruptcy and firm finance

Economic Theory, 2008

This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. The... more This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. The court is described by two parameters that correspond to enforcement costs and the amount of creditor/debtor protection. We provide a theoretical and quantitative characterization of the effect of these enforcement parameters on the contract loan rate, the default probability and welfare. We show that when constraints bind, which give agents an incentive to default and pursue bankruptcy, the enforcement parameters have a sharply non-linear effect on finance and welfare. The results provide guidance on when models which abstract from enforcement provide good approximations and when they do not. The bankruptcy rule corresponds to firm liquidation.

Recommended play and correlated equilibria: an experimental study

Economic Theory, 2007

... Timothy N. Cason · Tridib Sharma ... We are grateful for financial support provided by the Pu... more

Portfolio delegation under short-selling constraints

Economic Theory, 2006

We study delegated portfolio management when the manager's ability to short-sell is restricted. C... more We study delegated portfolio management when the manager's ability to short-sell is restricted. Contrary to previous results, we show that under moral hazard, linear performance-adjusted contracts do provide portfolio managers with incentives to gather information. We find that the riskaverse manager's effort is an increasing function of her share in the portfolio's return. This result affects the risk-averse investor's choice of contracts. Unlike previous results, the purely risk-sharing contract is now shown to be suboptimal. Using numerical methods we show that under the optimal linear contract, the manager's share in the portfolio return is higher than what it is under a purely risk sharing contract. Additionally, this deviation is shown to be: (i) increasing in the manager's risk aversion and (ii) larger for tighter short-selling restrictions. As the constraint is relaxed the deviation converges to zero.

Providing Managerial Incentives: Do Benchmarks Matter?

... Santa Teresa 930 Mexico City 10700. ... For analytical tractability we pose these questions i... more ... Santa Teresa 930 Mexico City 10700. ... For analytical tractability we pose these questions in a setting where both the client and the manager are risk neutral.1 In this framework, Heinkel and Stoughton&amp;amp;#x27;s (1994) model shows that benchmarking is optimal (in the class of linear ...

Portfolio delegation under short-selling constraints

Economics Working Papers, Jun 1, 2003

In this paper we study delegated portfolio management when the manager's ability to short-sell is... more In this paper we study delegated portfolio management when the manager's ability to short-sell is restricted. Contrary to previous results, we show that under moral hazard, linear performance-adjusted contracts do provide portfolio managers with incentives to gather information. The risk-averse manager's optimal effort is an increasing function of her share in the portfolio's return. This result affects the risk-averse investor's optimal contract decision. The first best, purely risk-sharing contract is proved to be suboptimal. Using numerical methods we show that the manager's share in the portfolio return is higher than the first best share. Additionally, this deviation is shown to be: (i) increasing in the manager's risk aversion and (ii) larger for tighter short-selling restrictions. When the constraint is relaxed the optimal contract converges towards the first best risk sharing contract.

Money-Back Guarantees

Health Insurance in Rural India

Economic and Political Weekly, Oct 22, 2005

Page 1. Health Insurance in Rural India This paper examines whether consumption expenditure of ho... more

Optimal contracts when enforcement is a decision variable: A comment. Authors' reply

Econometrica, 2003

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, a... more JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. This paper analyzes choice-theoretic costly enforcement in an intertemporal contracting model with a differentially informed investor and entrepreneur. An intertemporal contract is modeled as a mechanism in which there is limited commitment to payment and enforcement decisions. The goal of the analysis is to characterize the effect of choice-theoretic costly enforcement on the structure of optimal contracts. The paper shows that simple debt is the optimal contract when commitment is limited and costly enforcement is a decision variable (Theorem 1). In contrast, stochastic contracts are optimal when agents can commit to the ex-ante optimal decisions (Theorem 2). The paper also shows that the costly state verification model can be viewed as a reduced form of an enforcement model in which agents choose payments and strategies as part of a perfect Bayesian Nash equilibrium.

Enforcement and Firm Finance

This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. We ... more This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. We construct a model of enforcement which shows the following: (i) Firm default due to inability to pay and unwillingness to pay are equilibrium phenomena that arise endogenously and co-exist. (ii) The parameters that characterize enforcement have a highly non-linear influence on firm finance. (iii) Equilibrium credit rationing can occur for plausible parameter values. (iv) We identify a new type of credit rationing that is inherent in the underlying legal system. (iv) We provide complete characterizations of the effect of the enforcement parameters on the contract interest rate and the bankruptcy probability. These results help explain recent puzzles in empirical evidence on how the legal environment affects financial structure.

Secret Deliberations

SSRN Electronic Journal, 2000

The Effect of Enforcement on Firm Finance

This paper analyzes how an enforcement mechanism that resembles a court af- fects firm finance. W... more This paper analyzes how an enforcement mechanism that resembles a court af- fects firm finance. We construct a model of enforcement which shows the following: (i) Firm default due to inability to pay and unwillingness to pay are equilibrium phe- nomena that arise endogenously and co-exist. (ii) The parameters that characterize enforcement have a highly non-linear influence on firm finance. (iii) Equilibrium credit rationing can occur for plausible parameter values. (iv) We identify a new type of credit rationing that is inherent in the underlying legal system. (iv) We provide complete characterizations of the effect of the enforcement parameters on the contract interest rate and the bankruptcy probability. These results help explain recent puzzles in empirical evidence on how the legal environment affects financial structure.

The Nutrition Curve and Intra Household Allocation of Calories

by Tridib Sharma and S. Pratap

Enforcement and Firm Finance

This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. We ... more This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. We construct a model of enforcement which shows the following: (i) Firm default due to inability to pay and unwillingness to pay are equilibrium phenomena that arise endogenously and co-exist. (ii) The parameters that characterize enforcement have a highly non-linear influence on firm finance. (iii) Equilibrium credit rationing can occur for plausible parameter values. (iv) We identify a new type of credit rationing that is inherent in the underlying legal system. (iv) We provide complete characterizations of the effect of the enforcement parameters on the contract interest rate and the bankruptcy probability. These results help explain recent puzzles in empirical evidence on how the legal environment affects financial structure.

Coordination in Teams

by Tridib Sharma and Ricard Torres

Essays for Anjan Mukherji, 2011

Axiom of Monotonicity: An Experimental Test

SSRN Electronic Journal, 2000

The Axiom of Monotonicity (AM) is a necessary condition for a number of expected utility represen... more The Axiom of Monotonicity (AM) is a necessary condition for a number of expected utility representations, including those obtained by , and Anscombe and Auman (1963). The paper reports on experiments that directly test AM by eliminating strategic uncertainty, context, and peer e¤ects. In one treatment, the state space is simple to formulate. Here we do not observe violations of AM. When the state space is a bit more obscure, we …nd signi…cant violations of AM. JEL codes: D9, C7, C9.

Enforcing Property Rights Through Reputation: Mexico's Early Industrialization, 1878–1913

The Journal of Economic History, 2001

ABSTRACT Mexico s initial industrialization was based on firms that were grouped : that is, linke... more ABSTRACT Mexico s initial industrialization was based on firms that were grouped : that is, linked to other firms through close affiliations with a common bank. Most explanations for the prevalence of groups are based on increasing returns or missing formal capital markets. We propose a simpler explanation that better fits the facts of Mexican history. In the absence of secure property rights, tangible collateral could not credibly be offered to creditors; but there remained the possibility of using reputation as a form of intangible collateral. In such circumstances, firms had incentives to group together for purposes of mutual monitoring and insurance.

Durable Goods, Coasian Dynamics, and Uncertainty: Theory and Experiments

Journal of Political Economy, 2001

This paper presents a model in which a durable goods monopolist sells a product to two buyers. Ea... more This paper presents a model in which a durable goods monopolist sells a product to two buyers. Each buyer is privately informed about his own valuation. Thus all players are imperfectly informed about market demand. We study the monopolist's pricing behavior as players' uncertainty regarding demand vanishes in the limit. In the limit, players are perfectly informed about the downward-sloping demand. We show that in all games belonging to a fixed and open neighborhood of the limit game there exists a generically unique equilibrium outcome that exhibits Coasian dynamics and in which play lasts for at most two periods. A laboratory experiment shows that, consistent with our theory, outcomes in the Certain and Uncertain Demand treatments are the same. Median opening prices in both treatments are roughly at the level predicted and considerably below the monopoly price. Consistent with Coasian dynamics, these prices are lower for higher discount factors. Demand withholding, however, leads to more trading periods than predicted.

Debt contracts and cooperative improvements

Journal of Mathematical Economics, 2005

In this paper we consider a dynamic game with imperfect information between a borrower and lender... more In this paper we consider a dynamic game with imperfect information between a borrower and lender who must write a contract to produce a consumption good. In order to analyze the game, we introduce the concept of a coalitional perfect Bayesian Nash equilibrium (cPBNE). We prove that equilibria exist and are efficient in a precise sense. Deterministic contracts that resemble debt are optimal for a general class of economies. The cPBNE solution concept captures both the non-cooperative aspect of firm liquidation and the cooperative aspect of firm restructuring. JEL Classification Numbers: C70, D60, G30, K40

Interest rate discrimination, tenancy and cost sharing

Indian Growth and Development Review, 2011

Purpose – The aim of this paper is to develop a theory of sharecropping with cost sharing after a... more Purpose – The aim of this paper is to develop a theory of sharecropping with cost sharing after allowing for an explicit role of a creditor. In the tenancy literature, the prevalence of sharecropping has remained an important issue. While most contributions have focussed only on output sharing, very few have studied the issue of cost sharing. Besides, the existing

The effect of enforcement on firm finance

This paper analyzes how an enforcement mechanism that resembles a court af- fects firm finance. W... more This paper analyzes how an enforcement mechanism that resembles a court af- fects firm finance. We construct a model of enforcement which shows the following: (i) Firm default due to inability to pay and unwillingness to pay are equilibrium phe- nomena that arise endogenously and co-exist. (ii) The parameters that characterize enforcement have a highly non-linear influence on firm finance.

Bankruptcy and firm finance

Economic Theory, 2008

This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. The... more This paper analyzes how an enforcement mechanism that resembles a court affects firm finance. The court is described by two parameters that correspond to enforcement costs and the amount of creditor/debtor protection. We provide a theoretical and quantitative characterization of the effect of these enforcement parameters on the contract loan rate, the default probability and welfare. We show that when constraints bind, which give agents an incentive to default and pursue bankruptcy, the enforcement parameters have a sharply non-linear effect on finance and welfare. The results provide guidance on when models which abstract from enforcement provide good approximations and when they do not. The bankruptcy rule corresponds to firm liquidation.

Recommended play and correlated equilibria: an experimental study

Economic Theory, 2007

... Timothy N. Cason · Tridib Sharma ... We are grateful for financial support provided by the Pu... more

Portfolio delegation under short-selling constraints

Economic Theory, 2006

We study delegated portfolio management when the manager's ability to short-sell is restricted. C... more We study delegated portfolio management when the manager's ability to short-sell is restricted. Contrary to previous results, we show that under moral hazard, linear performance-adjusted contracts do provide portfolio managers with incentives to gather information. We find that the riskaverse manager's effort is an increasing function of her share in the portfolio's return. This result affects the risk-averse investor's choice of contracts. Unlike previous results, the purely risk-sharing contract is now shown to be suboptimal. Using numerical methods we show that under the optimal linear contract, the manager's share in the portfolio return is higher than what it is under a purely risk sharing contract. Additionally, this deviation is shown to be: (i) increasing in the manager's risk aversion and (ii) larger for tighter short-selling restrictions. As the constraint is relaxed the deviation converges to zero.