Essays on the economics of organizations and competition
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narayanan-aroon-phd-econ-2026-thesis (003).pdf
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Author(s)
Narayanan, Aroon
Advisor(s)
Agarwal, Nikhil
Gibbons, Robert
Date Issued
May 2026
Publisher
Massachusetts Institute of Technology
Abstract
This thesis comprises three essays on the economics of organizations and competition.
Firms routinely govern supplier relationships through performance-based systems that retain more capable partners and motivate greater effort, but how much value such systems create and how they should be designed are open empirical questions. Using administrative data from a large Indian buyer that manages its suppliers through a three-tier ranking, I estimate a dynamic principal-agent model in two stages: first recovering the buyer's allocation and transition rules via an iterative algorithm that handles unobserved tier assignments, then estimating supplier-side primitives conditional on this policy. The system improves performance by 12% over a no-relationship baseline, with selection accounting for roughly two-thirds of the value and incentivization the remainder; replicating the improvement through spot-market bonuses would require 18% higher supplier payments. Within the class of tiered policies, a steep two-tier structure is constrained-optimal and raises performance by 28%, yet the firm's graduated three-tier system is substantially more robust to uncertainty about the supplier pool. Firms may therefore persist with governance practices that appear suboptimal because such practices are selected for robustness to an uncertain environment rather than optimality in a known one.
Vertical integration is the classical solution to build supply chain resilience, yet most modern supply chains remain non-integrated despite frequent disruptions. Using novel daily timeline data from Indian manufacturing supply chains, we show that supplier underinvestment in key inputs, driven by working capital constraints and noncontractibilities in input use, is the primary driver of disruptions in these supply chains. Buyers respond through \textit{partial integration}: targeted interventions across firm boundaries such as in-person monitoring, contingent contracts, and direct sourcing of raw materials, rather than merely advancing cash. Buyer involvement escalates as disruption risk increases, with an unanticipated input cost shock triggering direct buyer control of inputs for the most constrained suppliers. We develop a three-stage model that rationalizes this selective control: buyers control input decisions to prevent resource diversion under noncontractibility, while ceding production decisions to preserve output-market incentives. This chapter is joint work with Vishan Nigam.
Interest rate caps are a common consumer protection policy, but their welfare effects depend on how they reshape access across borrower types. We study Kenya's 2016 regulation, which capped bank lending rates while leaving one digital platform, M-Shwari, exempt on the lending side and imposing a deposit-rate floor across all lenders. Using borrower-level administrative data, survey data, and a regression discontinuity design around the implementation date, we document three results: lending on M-Shwari rose but the safest borrowers substituted toward cheaper capped credit; riskier borrowers increased savings to build up their credit limits; and M-Shwari raised limits for the safest borrowers in an attempt to retain them. We build and estimate a structural model of screening and credit limit-setting to interpret these reallocations and compute welfare. The M-Shwari carve-out yields a slight aggregate welfare decline but preserves credit access for high-risk borrowers; a uniform cap across all lenders would generate substantially larger losses by eliminating that access entirely. The welfare case for interest rate caps thus hinges on whether a carve-out exists to serve the borrowers a pure cap would exclude. This chapter is joint work with Tavneet Suri and Prashant Bharadwaj.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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