Archishman ChakrabortyAssociate Professor
Schulich School of Business
4700 Keele Street
Toronto, ON M3J1P3
Adverse Selection and Convertible Bonds. Archishman Chakraborty and Bilge Yilmaz, Review of Economic Studies, forthcoming.
Asymmetric information regarding project prospects causes
dilution, leading to adverse selection and inefficiencies in the market for
new investments. However, if the market obtains information about the firm
over time, issuing callable convertible securities with restrictive call
provisions is optimal. Even when the market's information is noisy, such
securities can be designed to make the payoff to new claimholders
independent of the private information of the manager. The restrictive call
provision serves as a commitment device, enabling the manager to call only
when the stock price rises in the future. This solves the dilution and
adverse selection problem costlessly. The same first-best efficient outcome
can also be implemented by issuing floating price and mandatory
Security Design in IPOs. Archishman Chakraborty,
Simon Gervais and Bilge Yilmaz, Review of Finance, forthcoming.
We investigate the security design problem in an initial public offering
(IPO) in which some investors are better informed than others about the prospects of the
firm, resulting in a winner's curse problem. To raise capital, the owners of the firm
must underprice the securities they issue in order to compensate the less informed invest
ors for their willingness to participate in the issue. In this context, we first show that
firms can sometimes lower the cost of going public by using unit IPOs, in which equity
and warrants are combined into a non-divisible package. Because warrants are less sensitive
to low cash flow realizations, unit IPOs tend to be valuable to firms that face large
downside risks or whose uncertainty revolves around the eventual performance of their
assets in place. Second, we show that firms may be able to completely eliminate the winner's
curse problem by making the warrants callable. Such a first-best scenario is possible when
a firm's growth potential is sizeable even in bad states of the world, as the callability
feature of the warrant allows the firm to dynamically create payoffs that are insensitive
to the investors' private information.
Two-sided Matching with Interdependent Values.
Alessandro Citanna and Michael Ostrovsky, Journal of Economic Theory, forthcoming.
We introduce and study two-sided matching with incomplete information and
interdependent valuations on one side of the market. An example of such setting is a
matching market between colleges and students in which colleges receive partially
informative signals about students. Stability in such markets depends on the amount of
information about matchings available to colleges. We show that when colleges observe
the entire matching, a stable matching mechanism does not generally exist. When colleges
observe only their own matches but not those of other colleges, a stable mechanism exists
if students have identical preferences over colleges, but may also fail to exist if
students have different preferences.
Biased Experts. Archishman Chakraborty and Rick Harbaugh.
We consider the credibility, informativeness, and value of multidimensional
cheap talk by an expert with transparent motives. Transparency ensures that the expert can
credibly communicate information across dimensions and this information can be quite
detailed. The expert always benefits from cheap talk if her preferences are quasiconvex,
but is better off remaining silent if her preferences are quasiconcave. The model generates
new results on the nature of persuasive advertising, the revenue gains from auction
disclosure, the informational efficiency of voting rules, and the tradeoffs between cheap
talk and delegation.
Auctions with Ceilings. Priyodorshi Banerjee and Archishman
In symmetric common value auctions where bidders differ ex--post
in information quality, a seller may benefit from imposing a ceiling on
allowable bids. By reducing the winner's curse facing poorly informed
bidders, a ceiling encourages them to bid aggressively. This may reduce
information rents earned by better informed bidders, yielding the seller
higher expected revenues compared to selling the object in a standard
ascending auction or at a fixed posted price. Such a ceiling may be explicit
(a firm commitment not to accept bids above the ceiling) or implicit (a
credible threat not to honor the outcome if anyone bids higher than the
ceiling). Either situation can be interpreted as one where the object is
offered for sale at a fixed price or the best offer.Efficient Equilbria and Information Aggregation in Common Interest
Voting Games. Archishman Chakraborty and Parikshit Ghosh.
We characterize efficient equilibria of common interest voting
games with privately informed voters and study the implications for
Condorcet jury theorems. We show that larger juries can do no worse than
smaller ones and derive a simple necessary and sufficient condition for
asymptotic efficiency of different voting rules. This condition implies that
the unanimity as well as near unanimity rules are asymptotically inefficient
regardless of equilibrium selection. However, if the signal distribution
fails a non-degeneracy condition the unanimity rule dominates any other
rule. Finally, if signals are conditionally independent, full information
equivalence can be exactly achieved for any rule that allows the
divisibility of individual votes, and for any finite number of voters.Bookbuilding. Archishman Chakraborty, Michael Pagano and
and Robert Schwartz.
As participants reveal their orders to a market, prices are
discovered and trading volume (quantity) is "found" (i.e. books get deeper).
We refer to this as "bookbuilding," a non-trivial process that depends on a
market's rules of order handling and order information disclosure. The paper
shows that, for large participants, uncertainty about the profile of other
traders in the market distorts trading volume and reduces the gains from
trading. These inefficiencies are mitigated when participants can place
multiple (scaled) orders and when submitted orders are displayed in an open
book. In effect, the open book permits participants to engage in non-binding
communication, thus facilitating efficient bookbuilding. These findings are
robust to the inclusion of order submission costs and the ability to
costlessly withdraw previously placed orders.
Microstructure Bluffing with Nested Information
Archishman Chakraborty and Bilge Yilmaz, American Economic Review,
2008, 98(2), 280-284.
Comparative Cheap Talk.
Archishman Chakraborty and Rick Harbaugh, Journal of Economic
Theory, 2007, 132, 70-94.
Best Foot Forward or Best for Last in a Sequential Auction?
Archishman Chakraborty, Nandini Gupta and Rick Harbaugh, Rand Journal of Economics,
2006, 37, 176-194.
Occupational Choice, Incentives and Wealth Distribution.
Archishman Chakraborty and Alessandro Citanna, Journal of Economic
Theory, 2005, 122 (2), 206-224.
Manipulation in Market Order Models. Archishman Chakraborty
and Bilge Yilmaz, Journal of Financial Markets, 2004, 7 (2),
Informed Manipulation. Archishman Chakraborty and Bilge
Yilmaz, Journal of Economic Theory, 2004, 114 (1),
Multi-stage Financing and the Winner’s Curse. Archishman
Chakraborty and Bilge Yilmaz, Economics Bulletin, 2003, 4 (32),
Credible Comparisons in Multi-Issue Bargaining. Archishman
Chakraborty and Rick Harbaugh, Economics Letters, 2003, 78 (3),
Optimal Price Ceilings in a Common Value Auction. Archishman
Chakraborty, Economics Bulletin, 2002, 3 (7), 1-7.