The Untapped Potential of Humanitarian Economics

The humanitarian industry is booming and yet it is in crisis, writes Gilles Carbonnier.

While humanitarian assistance accounted for a mere 3% of total official development assistance (ODA) in 1990, it now surpasses 12%. In addition, private contributions have risen to make up a quarter of total humanitarian funding (figures 1 and 2). Somewhat by default, humanitarian action has become part of today’s global governance in the face of a lack of political will to resolve chronic crises.

Despite this funding boom, violations of international humanitarian law are on the rise, as exemplified by systematic attacks on hospitals in Afghanistan, Iraq, Syria and Yemen. Since such war crimes remain unpunished, they tend to be regarded as an attractive option by belligerents. Besides, kidnap and ransom have become the most prevalent risk facing humanitarian workers in countries like Afghanistan (Humanitarian Outcome 2017); it is not only relief goods that risk fueling war economies but aid workers themselves. The ensuing security threats seriously limit the ability of humanitarians to work in conflict zones.

How can economists help address these challenges? The profession has long neglected disaster and civil war despite the fact that the latter have affected many developing countries. In his 1993 presidential address to the Western Economic Association International, Jack Hirshleifer – who had pioneered work on armed conflict – predicted a bright future for economists belatedly entering this field:

“As we come to explore this continent [ie. conflict], economists will encounter a number of native tribes – historians, sociologists, philosophers, etc. – who, in their various intellectually primitive ways, have preceded us in reconnoitring the dark side of human activity. Once we economists get involved, quite properly we’ll of course be brushing aside these a-theoretical aborigines.”

Since Hirshleifer’s issued this statement tainted with economic imperialism and politically incorrect language, dozens of economists have explored civil war, terrorism and disaster. In a recent book entitled Humanitarian Economics. War, Disaster and the Global Aid Market (2016), I analyse how these contributions help understand and address contemporary humanitarian crises, also drawing on 25 years of research and humanitarian practice.

As a field of study and practice, humanitarian economics deals with the economic dimensions and political economy dynamics of armed conflict and disaster. Foreign aid is not treated as an exogenous response to adverse shocks but as part and parcel of contemporary war and disaster economies. From a normative viewpoint, it is driven by a permanent concern for humanitarian outcomes, which influences the research agenda and ethics. As illustrated hereafter, humanitarian economics can help address some of the roughest challenges facing the sector.

Since ancient times, preserving the life and dignity of war prisoners has been one of the major concerns that various normative frameworks have sought to address. The age of chivalry in Medieval Europe has been hailed as a time when the lot of the vanquished improved. While philosophers and sociologists have highlighted knightly values that glorified acts of mercy, economists have emphasised the changing costs and benefits of keeping prisoners alive: granting captors property rights over their prisoners raised the incentive to keep them alive. Monarchs with limited resources had an interest in granting each soldier the rights to their own war spoils. Battles pitting man against man made it possible to clearly identify who was made prisoner by whom and to assign property rights accordingly (Frey and Buhofer 1998).

The adoption of the first Geneva Convention in 1864 coincided with the final transfer of property rights over prisoners from individual combatants to states, partly as a result of new military technology and forced conscription. However, it has proved difficult to replace material incentives with international rules to protect war wounded and prisoners. When social norms are eroded and legal obligations discarded – as is now the case in several crisis situations – economic analysis can help understand and influence the behavior of combatants. As seen in Afghanistan and Syria, humanitarian actors can alter the captors’ cost-benefit calculus in favor of sparing the lives of the vanquished by securing their transfer away from the war zone. Recent attempts to bridge the micro-macro divide and to intensify micro level analysis of armed violence have the potential to better inform humanitarian responses, in particular with regard to protecting civilians and detainees.

Another application deals with needs assessment and relief interventions. Smart cards, mobile money, biometric recognition and other technological innovations lead to an expansion of cash-based assistance, including in remote areas where it was previously not feasible. The literature raises many arguments in support of cash-based programing and a few against it. Cash gives recipients a greater say over how to allocate aid according to their needs. It brings transaction costs down by doing away with the heavy logistics associated with the delivery of in-kind assistance. Yet, moving goods and trucks into war zones opens up otherwise closed enclaves; the more visible presence of aid agencies may reinforce passive protection of conflict-affected communities. In any case, the ongoing shift to cash assistance requires aid workers to conduct in-depth market analysis and ever more sophisticated needs assessments; some of which build on household economics and an expanded version of Sen’s notion of entitlements. More research would help design appropriate exit strategies to explore when and how to reduce cash assistance in conjunction with alternative livelihood opportunities.

Turning to natural hazards, there is a surge in disaster risk insurance and risk linked securities such as catastrophic insurance bonds (cat bonds). Insurance companies have teamed up with multilateral aid organisations to market cat bonds and disaster (micro)insurance products. Weather related parametric triggers contribute to lower transaction costs, making these products more attractive. Disaster prone but sovereignty assertive states may thus transfer part of the disaster risks onto global financial markets thereby reducing dependency on foreign aid when hit by a disaster. Economists have much to contribute in evaluating the potential of these new instruments, which lead to enhanced collaboration between aid agencies and the financial service industry, but also to increasing competition associated with well-known moral hazard issues. Evaluating the effectiveness and legitimacy of business-humanitarian partnerships deserves greater scrutiny. The same applies to the impact of greater risk coverage on disaster costs and, in conflict settings, the incentives to reduce so-called ‘collateral damages’ provided by enhanced value of a statistical life.

To conclude, humanitarian economics offers a largely untapped potential to improve our understanding of – and responses to – humanitarian crises. It involves dealing with epistemological tensions such as resorting to cost-benefit analysis to make sense of suicide attacks triggered by emotions such as resentment, or of non-kin altruism by medical aid workers risking their lives to address the 2014 Ebola epidemics in West Africa. Recent advances in behavioral economics can help in this regard together with greater interdisciplinary engagement. Indeed, disciplinary boundaries tend to fragment the complex social reality that influences the behavior of civilians, combatants and humanitarians in armed conflict. Instead of brushing aside so-called ‘a-theoretical aborigines’, humanitarian economics calls for cross-disciplinary engagement combining different social inquiry techniques, including an inductive approach.

 

References

Carbonnier, Gilles (2016), Humanitarian Economics – War, Disaster and the Global Aid Market. London & New York: Hurst & Oxford University Press.

Carbonnier, Gilles (2015), Reason, Emotion, Compassion: Can Altruism Survive Professionalisation in the Humanitarian Sector? Disasters 39 (2): 189-207.

Development Initiative (2017), Global Humanitarian Assistance Report 2017. London: Development Initiative.

Frey, Bruno and Heinz Buhofer (1998), Prisoners and Property Rights, Journal of Law and Economics 31 (1): 19-46.

Hirshleifer, Jack (1994), The Dark Side of Force: Western Economic Association International 1993 Presidential Address, Economic Inquiry 32 (1): 1-10.

Humanitarian Outcome (2017), Aid Worker Security Report 2016. Figures at a Glance https://aidworkersecurity.org/sites/default/files/HO_AidWorkerSecPreview_1015_G.PDF_.pdf  <accessed 10 July 2017>

Gilles Carbonnier

Prof.

Gilles Carbonnier is Professor of Development Economics at the Graduate Institute of International and Development Studies since February 2007. He obtained his PhD in Economics from Neuchâtel University.

He is editor-in-chief of International Development Policy since 2008, and President of the board of directors of CERAH, the Centre for Education and Research in Humanitarian Action. His research and publications focus on the energy-development nexus and the governance of extractive resources, as well as on humanitarianism, the political economy of armed conflict and international development cooperation. Gilles Carbonnier has over 20 years of professional experience in international trade, development cooperation and humanitarian action.

ECONOMISTS ON PEACE

Economists on Peace is a collaboration between IEP and EPS, presenting some of the latest thinking on pressing issues relevant to the policy, practice and theory of economics and development in conflict and crisis-affected contexts from leading academics and experts in economics, peace and security.

Economists on Peace aims to stimulate global discussion and shared learning on economic aspects of peace and conflict leading to appropriate action for peace, security and the world economy.

ECONOMISTS ON PEACE

Economists on Peace is a collaboration between IEP and EPS, presenting some of the latest thinking on pressing issues relevant to the policy, practice and theory of economics and development in conflict and crisis-affected contexts from leading academics and experts in economics, peace and security.

Economists on Peace aims to stimulate global discussion and shared learning on economic aspects of peace and conflict leading to appropriate action for peace, security and the world economy.

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