Ben Roth is an assistant professor of business administration in the Entrepreneurial Management Unit, teaching The Entrepreneurial Manager to MBA students. He is a development economist with a particular interest in developing and applying ideas from economic theory to two overlapping agendas: understanding and relaxing the constraints to small-scale entrepreneurship in the developing world, and market design under weak institutional enforcement. His recent work focuses on the ways in which financial markets can be designed to better catalyze small-scale entrepreneurship, and spans both theory and field experimentation.
Ben earned a BA in economics from Washington University in St. Louis and a PhD in economics from MIT.
A debt trap occurs when someone takes on a high-interest rate loan and is barely able to pay back the interest, and thus perpetually finds themselves in debt (often by refinancing). Studying such practices is important for understanding financial decision-making of households in dire circumstances as well as for setting appropriate consumer protection policies. We conduct a simple experiment in three sites in which we paid off high-interest moneylender debt of individuals. Most borrowers returned to debt within six weeks. One to two years after intervention, treatment individuals were borrowing at the same rate as control households.
Roth, Benjamin N. "Market Design Under Weak Institutions." In More Equal by Design: Economic Design Responses to Inequality, edited by Scott Duke Kominers and Alex Teytelboym. Oxford University Press, forthcoming.
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Often market designers cannot force agents to join a centralized marketplace rather than using their pre-existing decentralized strategies. We propose a new desideratum that guarantees the safety of participation: Dominant Individual Rationality (DIR). A marketplace is DIR if every decentralized strategy is weakly dominated by some centralized strategy. We show that a suitable modification of the Boston algorithm is DIR and a similar modification of any stable matching algorithm is approximately DIR. We also provide a general construction to achieve DIR across a wide range of marketplace designs.
Microcredit and other forms of small-scale finance have failed to catalyze entrepreneurship in developing countries. In these credit markets, borrowers and lenders often bargain over not only the division of surplus but also contractual flexibility. We show these lending relationships may lead to endogenous poverty traps for poor borrowers if future income is not pledgeable, yet richer borrowers unambiguously benefit. Improving the bargaining position of rich borrowers can harm poor borrowers, as the lender tightens restrictions and prevents them from growing. The theory rationalizes the low average impact and low demand of microfinance despite its high impact on larger businesses.
