Stock image of a refugee camp

As the war in Ukraine continues to displace thousands of residents, creating a refugee crisis not seen in years, greater focus is being place on the organizations whose missions are to serve and to advocate for these refugees.

New research by Telesilla Kotsi, assistant professor of operations and business analytics at Fisher, examines how humanitarian organizations can understand and focus their in-kind and cash assistance programs to better serve refugee populations. The research was co-authored with Owen Wu and Alfonso Pedraza-Martinez, associate professors of operations and decision technologies at Indiana University.

What kind of shift have you observed recently as it pertains to humanitarian assistance?

Kotsi: For refugee populations, humanitarian organizations traditionally provide in-kind assistance in the form of food, water, hygiene, medical and shelter items. In 2014, in-kind assistance accounted for 94% of the $25 billion of humanitarian assistance worldwide; the remaining 6% was money (cash assistance) provided to beneficiaries. However, many humanitarian organizations are turning to cash, with cash assistance increasing from 6% to 18% in 2014-2019. Cash assistance benefits local retailers, but it reduces the amount of goods received by refugees, and price inflation hurts both refugees and local residents.

Despite this increase, what are the major shortcomings of existing cash assistance programs provided by humanitarian organizations?

Currently, humanitarian organizations tend to only collect information upfront about the host communities to decide whether to provide cash or in-kind assistance. This information usually includes types, prices and variety of products available for purchase by refugees in the local market. Our research recommends that humanitarian organizations also consider market dynamics to proactively drive these dynamics in favor of everyone (refugees, retailers, residents, humanitarian organizations and governments). Moreover, currently, humanitarian organizations share information with retailers about their cash assistance plans to improve the experience for just refugees and host communities. Humanitarian organizations typically inform the retailer about the number of refugees, what in-kind assistance is provided to them, what goods they need to purchase, and how much cash assistance they will receive.

Our research details, along with the amount of cash assistance, a specific communication plan between retailers and humanitarian organizations that can help align the incentive of the retailers (to maximize profits) with the goal of the humanitarian organizations-government partnership (to ensure that the assistance “does no harm” to any stakeholder).

What are you seeing as it pertains to what is unfolding in Ukraine?

The crisis in Ukraine is still unfolding, which means that humanitarian organizations are managing a varying number of refugees daily, and not a stable group, which is an important factor for humanitarian organizations when considering cash assistance. Furthermore, we only know about the entry points of refugees to neighboring countries to Ukraine. It is rather unclear which of these will become host communities and, subsequently, the market conditions in these communities.

Our modeling assumptions are general enough to capture settings in which the influx of refugees — or other beneficiaries of humanitarian aid — can affect local (monopolistic) retailer prices. If monopolistic markets are present because transportation capacity is limited, or there is a highly concentrated retail market, then humanitarian organizations should carefully consider the assistance mix for refugees.

We look forward to connecting with the humanitarian organizations involved in assisting Ukrainian refugees to discuss ways of better managing cash assistance and ensuring that no harm is done. Despite this research opportunity, our hope is for peace to prevail soon and our research to no longer be needed.

How should a humanitarian organization allocate its budget between in-kind and cash assistance to help refugees, anticipating the retailer’s pricing behavior?

We conducted field research in three refugee camps in rural areas of northwestern Greece. We used the insights from the field research to inform our game-theory model, in which: the humanitarian organization first allocates a fixed budget between cash and in-kind assistance, followed by a monopolistic retailer setting market prices, and finally a population of refugees making purchase decisions with limited cash from the cash assistance. We find that cash assistance can help refugees by allowing them to purchase goods according to their individual needs. But profit-maximizing retailers exploit the cash assistance, hurting both refugees and local residents, who are paying increased prices for goods.

Furthermore, our analysis reveals the severity of the harm. When cash assistance increases, the retailer generates more profit from the refugees due to the increased prices. The refugees’ utility increases first reaching a peak point, driven by the value of cash assistance for refugees meeting their individual needs. However, as the cash assistance increases further, the utility starts decreasing faster than the increase in the retailer’s profit from selling to the refugees and the retailer’s total profit. In a nutshell, the magnitude of the negative impact of market power is severe: It primarily affects refugees but hurts local residents as well.

Your research outlines a policy that could be a remedy to the scenario above. What does that policy entail?

To minimize government intervention on prices, we propose a policy as an innovative way to achieve the social-welfare-maximizing solution. This new method is the price-dependent cash assistance (PDCA) policy. Under this policy, the amount of cash assistance humanitarian organizations provide to refugees is no longer predetermined. It is dependent on a retail price index, thereby changing the retailer’s incentives.

For example, if the retail price index is too high, the partnership will offer less cash assistance to the refugees, thus curbing the retailer’s sales. The PDCA policy seeks to design a price index with certain weights and specify the resulting cash assistance for every value of the price index, so that it is in the retailer’s best interest to voluntarily choose the prices targeted by the humanitarian organizations-government partnership. To implement a PDCA policy, the humanitarian organization first announces such a policy to the retailer, and the retailer is free to choose any retail prices upon the refugees’ arrival. Once the chosen prices are verified and the price index is calculated, the humanitarian organization distributes the cash assistance to the refugees (by direct deposit to refugees’ debit cards) and, importantly, the retailer must commit to the chosen retail prices for the period that the cash will be spent.

The government’s role in the PDCA policy is facilitating communication and monitoring implementation. We show that this policy enables the humanitarian organization-government partnership to help refugees while doing no harm — or even bringing economic benefits to both the retailer and residents in the host community.

What were your conclusions from the research?

Our analysis reveals that cash assistance is a double-edged sword: If humanitarian organizations provide cash assistance without considering retailers’ market power, the humanitarian organizations will inadvertently harm the refugees and local residents. This issue justifies humanitarian organizations’ general policy of avoiding cash assistance in monopolistic markets. However, coordinating with the local government, humanitarian organizations can extend cash assistance to settings with market power.

What takeaways can humanitarian organizations glean from the research and potentially explore to improve the impact of their missions?

We propose a partnership between humanitarian organizations and local governments that effectively curbs retailers’ market power. We recommend the partnership adopt a price-dependent cash assistance policy that restores the distorted incentive — that is, the unintended consequence that retailers will increase prices above the original prices due to the introduction of cash assistance. Our specific policy achieves a rare win-win-win solution, where refugees can meet their individual needs in a dignified way, retailers sell more products (and makes at least the same profit as before), while local residents enjoy lower prices.

Our numerical analysis also indicates there are material economic benefits to local residents due to cash injection. Therefore, our research designs operational tools for humanitarian organizations to persuade local governments to recognize the economic benefits of welcoming refugees into their communities.