BLOOMINGTON, Ind. – Over the past four weeks, more than 3.5 million Ukrainians have fled their country to escape Russian forces, facing an uncertain future and placing new economic demands on host countries like Poland. In addition to this recent crisis, more than 80 million people have been forcibly displaced around the world, including in Syria, Venezuela, Afghanistan, South Sudan and Myanmar.
As humanitarian organizations provide in-kind assistance in the form of food, hygiene items and shelter, many are increasingly turning to cash payments, in a bid to provide refugees with spending flexibility. , restore their dignity and enhance the wealth of their host communities. .
New research from Indiana University’s Kelley School of Business reveals that cash aid is a double-edged sword. If a humanitarian organization provides cash assistance without considering supply chain responses, including price inflation due to the market power of retailers, the humanitarian organization will inadvertently harm refugees and local residents. Prices rise for everyone and refugees receive less goods.
“Over the past 150 years, humanitarian organizations have become experts in assisting beneficiaries through in-kind assistance. Recently, cash aid has gained popularity as an effective type of aid, as it also benefits local economies. However, to avoid price inflation, aid organizations have implemented their cash assistance programs primarily in competitive markets,” the authors wrote in the article “Donations for Refugee Crises: In-kind Versus Cash Support”, published in advance by Manufacturing & Service Operations. Management.
“An unresolved challenge facing humanitarian organizations is to provide cash assistance to their beneficiaries when local retailers have market power,” they added. This is “a significant issue because there are many communities that not only host refugee camps, but also face the market power of retailers.”
Owen Wu, Associate Professor of Operations and Decision Technologies and Grant Thornton Scholar, and Alfonso Pedraza-Martinez, President and Associate Professor of Operations and Decision Technologies and John & Esther Reese Professor, co-author of the study with Telesilla Kotsi, Assistant Professor of Operations and Business Analytics at The Ohio State University.
Kotsi, Wu, and Pedraza-Martinez noted that while refugees appreciate the power and flexibility to buy goods to meet their own needs, retail prices are higher than the wholesale prices aid organizations pay for food. aid in kind. “While cash assistance benefits local retailers, it reduces the amount of goods received by refugees and price inflation harms both refugees and local residents,” they said.
Their research shows that when aid organizations coordinate with local governments, they can extend cash assistance to host areas with market power. In their article, they propose partnerships between humanitarian organizations and local governments that effectively limit retailer’s market power.
“We recommend that the partnership adopt a price-dependent cash assistance policy that restores the distorted incentive due to the introduction of cash assistance and achieve a win-win-win solution, where refugees can meet their individual needs in a dignified way,” they said. . “The retailer sells more products – and makes at least the same profit as before – while local residents benefit from lower prices.”
Under this policy, the amount of cash assistance depends on a retail price index based on a set of essential goods. If the retail price index is too high, the partnership will offer less cash assistance to refugees, thus dampening the retailer’s sales. Such a policy aligns the incentives between the retailer and the partnership.
“A price-dependent cash assistance policy aligns incentives between the retailer and the HO-government partnership. This new cash assistance policy acts as a lever for the retailer to voluntarily set desirable prices, which benefit both refugees and their host community,” said Kotsi, Wu and Pedraza-Martinez. The government’s role in this policy is to facilitate communication and monitoring of implementation.
Before the start of the war in Ukraine, around 6 million people were already living in refugee camps around the world. Most face restrictions on their ability to find employment due to their refugee status. Reasons why cash assistance has increased in recent years include the acceleration of economic growth in many developing countries and the availability of goods in local markets.
Additionally, cash assistance allows refugees to purchase their favorite goods from local shops, providing them with dignity. Finally, some host communities perceive refugees as a burden and show hostility towards them, leading the UN Refugee Agency to recommend the use of cash assistance to enable communities to benefit from economic advantages and thus promote peaceful relations with the refugees.
The research began at the end of 2016 as a collaboration between three co-authors. Kotsi, who obtained his doctorate. at Kelley, conducted field research in three refugee camps in northwestern Greece from December 2016 to January 2017. They used the field research to define their research framework and to support their hypotheses and parameters modeling. They then used a game-theoretic model to analyze the interactions between the aid organization, the refugees, a monopoly retailer, the residents, and a local government.
Their article offers suggested tools and applicable policies to guide humanitarian organizations to improve their budget allocations between in-kind and cash assistance for refugees living in areas where local market power exists. . “A price-dependent cash assistance policy that can be implemented by humanitarian organizations and governments benefits everyone – refugees, retailers, residents, governments and humanitarian organizations,” they concluded.
The authors look forward to connecting with humanitarian organizations involved in assisting Ukrainian refugees to discuss possible challenges in managing supply chains and distributing aid between in-kind and cash payments for Ukrainian refugees. . “Despite the opportunity for research presented by the emerging crisis, we hope that peace will prevail and that our research will no longer be needed,” they said.