Ritika Verma
I like to think about contracts, information, and who gets funded.
I like to think about contracts, information, and who gets funded.
I am a fifth-year PhD student in Economics at New York University. My research is in microeconomic theory, with applications in entrepreneurial finance, innovation markets, and corporate finance. I am interested in how information and incentives shape the contracts that entrepreneurs and investors write — and what that means for who gets to build things.
In a dynamic model, an investor financing the project cannot observe project failure and the entrepreneur, facing career concerns, can hide failure. There is a tension between promoting early disclosure of failure and providing sufficient incentives for it. The optimal contract incentivizes disclosure of failure during an initial transparency stage, followed by a delayed disclosure stage where failure is disclosed with a lag of random length. The model explains several empirical patterns in venture capital financing and the financing of innovation.
How do entrepreneurs design financing contracts when raising funds from investors who have private information about project quality? I study the optimal contract an entrepreneur proposes given two information frictions — effort incentives and asymmetric information. A key finding is that entrepreneurs exhibit an endogenous preference for risk in their contract design, arising from a tradeoff between maximizing returns across projects of varying quality. I apply these results to analyze how differences in entrepreneur beliefs affect project outcomes and aggregate efficiency.
