My main research interest lies in Development Economics, conjoint with Behavioral Economics. There is a rather new discipline called "Behavioral Development Economics". The term as been introduced in papers e.g. by Jeffrey Carpenter and Sendhil Mullainathan.
I made a list of people who needed just a little bit of money. And when the list was complete, there were 42 names. The total amount of money they needed was $27. I was shocked.
Muhammad Yunus
There are many interesting questions that arise and I would like to address through my research.
It is an open question how social preferences evolve and how they interplay with formal institutions. It is argued that trust, altruism or reciprocity evolves as a necessary response to market failures. Consider for example credit markets in developing countries. Microfinance organizations seek to use social capital to overcome information related problems, such as adverse selection and moral hazard. The key question here is, whether in the development process formal institutions crowd out social preferences or whether these are not substitutes but rather, complements. Markets are such formal institutions, hence the question arises whether it is actually the case (as proposed by Hirschman, 1982) that markets, as formal institutions, simply replace other informal economic relationships?
Furthermore, there is some evidence "suggesting that informal institutions may outperform formal institutions because local solutions are often better informed" (Carpenter and Cardenas, 2006). This is interesting, as for example the arguments provided for the usage of social capital in microfinance are derived from principal-agent problems with adverse selection and moral hazard. For example in Ghatak and Guinnane (1999) - all presented microeconomic models suggest that only a second-best can be achieved, but not a first best.
In my M.Sc. extended essay, I wanted to look at the effect of product market competition on microcredit delivery schemes. One motivation behind this is the observation that microenterprises simply do not grow much beyond subsistnence.
Looking e.g. at Grameen Bank Statistics it becomes obvious that most of the loans are used for quite similar business activities -- mostly forms of petty trading. Microcredit makes it possible for a wide range of individuals to become entrepreneurs, even though they may not have the skills to do so successfully. Many individual see their microenterprise as a means to diversify their income streams and thus, reduce the variance in their consumption. However, it may be argued that entry by indinviduals who lack the adequate entrepreneurial skills to graduate their business distort or destroy the growth opportunities for the more able ones. In light of such an argument, a more careful screening of microcredit recipients may prove beneficial in the long run as, once their businesses graduate, they are also able to provide employment.