Social networks or social capital is one of the topics have been discussed in this Cafe (even debated among its barristers). It is a topic that has been of a growing interest of some economists. Harvard's Economic Department even offers a course devoted specifically to this issue.Microfinance, anyone?
Roby, a sociologist, regular visitor of this Cafe, as well as close friend of the barristers, can be considered as the authority of this field. He sent us this piece about microfinance as a potential intersection for social scientists to study more about mechanism design problem. Although it is not the first time that microfinance is being discussed in the context of social network (this is one example, or here is a list of more serious stuffs), still it is interesting to see Roby's challenge will be answered in the Indonesian context.
I am one of the fans of this blog but so far I only contribute by writing rather negative comments. In this post I want to share something positive.
As you may know, I am not an economist but some of my colleagues here are economists or working on topics that are also of interest for economists. I must say that I like economics but can't stomach some economists especially when they start to pretend to understand something and come up with "explanations" that actually don't explain anything. Having said that, I do think economists have succeeded in creating some useful arsenals and insights to understand human behavior.
Recently my boss left his tenured position to join the microeconomic research group of a leading web company. Since his departure, I regularly come to his new office and meet a lot of interesting people with different background, including economists. I try to know more about the kinds of interdisciplinary work where computer scientists, physicists, mathematicians, economists, psychologists and sociologist are working together.
Social scientists and economists are hired by major internet firms to help those firms to understand user behavior, from buying or selling products to hanging out in social networking sites. Armed with the understanding, these firms hope they can find better ways to monetize the services they offer through their websites. From the scientific point of view, access to huge data of human interactions and relatively "unlimited" resources (in comparison to resources in
academia) give us the chance to study human dynamics in unprecedentedscale and detail.
All of these are interesting but these kinds of work are not very relevant to Indonesia. Although the Internet in Indonesia is growing, the scale of the usage – in terms of business or social – won't be even near the usage in the US anytime soon.
However, I think there is an area in particular in which similar basic ideas can be applied in Indonesia: the microfinance industry.
I know next to nothing about microfinance, but here is what I think. To my understanding, microfinance is about figuring out ways how to do business with people who are traditionally unbankable. They are usually poor people in rural area. They are untouched by traditional
finance system because it is too hard to assess their credit worthiness or it's simply too risky.
One way to overcome the problem is to deal them collectively instead of individually. The idea is to utilize some group mechanisms to minimize the risk: group members would make sure everyone to repay the loan and hence guarantee continued access to lenders.
We can approach the problem as an interdisciplinary mechanism design problem: social scientists and social psychologists could study the relevant properties of group dynamics in (rural) Indonesia, then, together with economists, design how incentives could be structured
in a particular setting.
The project, I think, is intellectually interesting and would be easy to gain support since everyone cares about the poor in Indonesia.
Is this possible?