The untapped potential of humanitarian economics

July 22, 2017

The untapped potential of humanitarian economics

The humanitarian industry is booming and, yet, it is in crisis. Government funding for international humanitarian assistance has multiplied sevenfold since 1990, reaching $27.3 billion in 2016. Humanitarian assistance was only 3% of total official development assistance (ODA) in 1990, but is now more than 12%. The proportion of private contributions has also risen, and now is a quarter of total humanitarian funding (Figures 1 and 2). Due to the lack of political will to resolve chronic crises, humanitarian action1 has, almost by default, become part of global governance.

Figure 1 Official humanitarian assistance, all donors
(US$ billion, constant 2012 prices)

Source: Data from OECD/DAC.

Figure 2 Official and private humanitarian assistance 2012–2016
($ billion current)

Source: Development Initiative (2017), p. 29.

Despite the humanitarian funding boom, violations of international humanitarian law are on the rise, as illustrated by recent attacks on hospitals in Afghanistan, Iraq, Syria, and Yemen. These war crimes are often unpunished and thus tend to be regarded as an attractive option by belligerents. It is not only relief goods that risk fuelling war economies, but aid workers themselves. Kidnap and ransom has become the most prevalent risk facing humanitarian workers in countries like Afghanistan (Humanitarian Outcome 2017). This security threat limits the ability of humanitarians to work in conflict zones.

How can economists help address these challenges? For a long time, the profession neglected disaster and civil war even though both affected many developing countries. In his 1993 presidential address to the Western Economic Association International, Jack Hirshleifer – who pioneered work on armed conflict – predicted a bright future for economists entering this field:

“As we come to explore this continent [of 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, dozens of economists have explored civil war, terrorism and disaster. I have analysed these contributions to our understanding of contemporary humanitarian crises (Carbonnier 2016), drawing on 25 years of research and humanitarian practice.

Applied humanitarian economics

Humanitarian economics can help address some of the toughest challenges facing the sector. As a field of study and practice, it deals with the economic dimensions and political-economy dynamics of armed conflict and disaster. It does not treat foreign aid as an exogenous response to adverse shocks, but as part of contemporary war and disaster economies. It is driven by a search for normative humanitarian outcomes, which influences the research agenda and ethics.

Preserving the life and dignity of prisoners of war has been one of the major concerns that normative frameworks have tried to address since ancient times. Philosophers and sociologists recognise the age of chivalry in medieval Europe as a time when outcomes for these prisoners improved, focusing on the knightly values that glorified acts of mercy. Economists instead emphasise 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. Personal combat in battle made it possible to identify who was made prisoner by whom, and to assign property rights accordingly (Frey and Buhofer 1998).

The first Geneva Convention in 1864 established the final transfer of property rights over prisoners from individual combatants to states, partly as a result of new military technology and forced conscription. It has, however, proved difficult to replace material incentives with international rules to protect wounded combatants 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 behaviour of combatants. In Afghanistan and Syria, humanitarian actors have altered the captors’ cost-benefit calculus in favour 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 improve humanitarian responses, in particular protecting civilians and detainees.

Other applications are needs assessment and relief interventions. Economic research raises many arguments in support of cash-based programming and a few against it. Smart cards, mobile money, biometric recognition, and other technological innovations lead to an expansion of cash-based assistance, especially in remote areas where this assistance was previously not feasible. 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 complex logistics associated with the delivery of in-kind assistance. (Although moving goods and trucks into war zones allows opening up otherwise closed enclaves, and more visible presence of aid agencies may reinforce passive protection of conflict-affected communities.) The shift to cash assistance requires aid workers to conduct in-depth market analysis and sophisticated assessments of needs, 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. They can explore when, and how, to reduce cash assistance when there are better opportunities for the recipients to earn their own livelihood.

For natural hazards, there is a surge in disaster-risk insurance and risk-linked securities such as catastrophic insurance bonds (‘cat bonds’). Insurance companies have worked 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 states that nevertheless like to assert their sovereignty may transfer some of the disaster risk onto global financial markets, reducing dependency on foreign aid if they are affected by a disaster. These new instruments lead to collaboration between aid agencies and the financial service industry, but also to increase competition associated with well-known moral hazard problems. Economists have much to contribute in evaluating the potential effectiveness and legitimacy of these business-humanitarian partnerships, and this deserves greater scrutiny (Andonova and Carbonnier 2014). The same applies to the impact of greater risk coverage on disaster costs and, in conflict settings, the incentives to reduce ‘collateral damages’ provided by enhanced value of a statistical life.

Data and ethics

The greater the evidence-base for humanitarian action, the better. Relief agencies are generating an increasing pool of data through systematic needs assessments and programme monitoring. For example, e-food vouchers for Syrian refugees allow us to track the consumption patterns of millions of refugees on a daily basis, over several years. That said, collecting reliable data is still difficult during armed conflicts and disasters. There is also frequently a lack of baseline information, or appropriate counterfactuals.

Improvements in satellite imaging and geospatial data, together with better datasets on violent events and disasters, make more rigorous quantitative studies possible, such as the experiments to evaluate aid programs aimed at winning ‘hearts and minds’ in counterinsurgency operations. Aid provided by the military is part of the contest between the state and the insurgency. It is expected to enhance support for the state in the communities that receive it, weakening the insurgents’ popular base, and providing communities with an incentive to share information with the armed forces. This leads to a decline in insurgent attacks and violence. Some experiments support this hypothesis (e.g. Beath et al. 2012). Others conclude that allocating aid to hearts-and-minds campaigns leads the insurgents to try to sever ties between recipients and aid providers by intensifying attacks against recipients (e.g. Crost et al. 2014). These findings lead to different policy recommendations, with different consequences for conflict-affected communities who wish only to preserve their own security.

More generally, studies carried out in conflict settings can have a direct bearing on the security and integrity of research subjects. The ethical issues are well-known in public health, where the Hippocratic oath binds medical professionals to do no harm, but are less well-known in economics. When collecting data in refugee camps or in a civil war where terrorist organisations operate, protecting the physical and psychological integrity of informants and local research partners must be a priority. Researchers’ incentives should be aligned, from initial research design to disseminating the findings and recommendations. This means thinking about data protection and intelligence gathering explicitly beforehand. The principles of neutrality and doing no harm should apply to humanitarian actors and researchers alike (Barnett 2008).

Untapped potential

Humanitarian economics offers a largely untapped potential to improve our understanding of – and responses to – humanitarian crises. Cost-benefit analysis or recent advances in behavioural economics can help 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. But greater interdisciplinary engagement matters too. It can break down disciplinary boundaries that fragment the complex social reality that influences the behaviour 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 the inductive approach.


Andonova, L and G Carbonnier (2014), “Business-Humanitarian Partnerships: Processes of Normative Legitimation”, Globalizations 11 (3): 349-367.

Barnett, M (2008), “Humanitarianism as a Scholarly Vision”, in M Barnett and T Weiss (eds), Humanitarianism in Question: Politics, Power, Ethics, Ithaca: Cornell University Press, 235-265.

Beath, A, C Fotini and R Enikolopov (2012), “Winning Hearts and Minds through Development: Evidence from a Field Experiment in Afghanistan”, MIT Political Science Department, Working Paper No. 2011.

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

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

Crost, B, J Felter, and P Johnston (2014), “Aid Under Fire: Development Projects and Civil Conflict”, American Economic Review 104 (6): 1833-1856.

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

Frey, B and H Buhofer (1998), “Prisoners and Property Rights”, Journal of Law and Economics 31 (1): 19-46.

Hirshleifer, J (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 (accessed 10 July 2017).


[1] The OECD/DAC defines humanitarian assistance as aid “designed to save lives, alleviate suffering and maintain and protect human dignity during and in the aftermath of emergencies … consistent with the humanitarian principles of humanity, impartiality, neutrality and independence.”



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