Gifts of cash may be best way to rebuild lives of disaster victims

Multiple studies have found that when people in need receive cash and the freedom to spend it as they choose, the results are impressive. For example, a study by Christopher Blattman, Nathan Fiala and Sebastian Martinez in post-conflict Uganda found that people who received cash grants invested in enterprises, earning an average 40 percent rate of return after four years. In post-tsunami Sri Lanka, Suresh de Mel, David McKenzie and Christopher Woodruff found that cash grant recipients saw rates of return in the 80 percent-plus range after five years.

In addition to improving the long-run living standards of individual recipients, giving aid as cash has the potential to massively streamline delivery. As we’ve explained with Blattman, delivering physical goods to people in need tends to be very expensive (when we know costs at all, which is too infrequent).

For example, a recent Science paper on the (positive) impacts of six programs that transferred assets to the poor found that on average, 68 percent of program budgets were spent on management and delivery, with only 32% spent on the assets the poor actually received.

The simpler cash-only program run by GiveDirectly (which we co-founded) spends 10 percent on delivery and puts 90 percent into recipients’ hands. In other words, we can deliver three times as much value when we deliver as cash. It’s possible that the added management activity involved in the traditional programs offsets this by tripling their value, but we would argue that the burden of proof lies on that side.

Enabling individuals
Of course, giving cash directly to victims is not the answer to all post-disaster problems. Infrastructure – roads, airports, schools – all needs to be rebuilt, and that requires coordinated activity. But when it comes to helping individuals rebuild their lives, it is hard to see the rationale for giving victims the things we think they might need, instead of enabling them to buy exactly what they want. There is certainly no evidence to suggest we’re better at it than they are.

Will the old ways change? There are glimmers in the response to Nepal. Some aid organizations like HelpAge are already sending cash payments directly to vulnerable individuals, with (anecdotally) positive results. Recipients report receiving support faster and being better able to obtain the specific things they need.

In Lebanon, the IRC recently released results showing strong positive impacts of cash transfers on Syrian refugees.

But overall, the share of humanitarian relief delivered as cash transfers is estimated at no more than 6 percent, according to the Overseas Development Institute, a U.K. think tank on international development and humanitarian issues.

If the aim of relief is to help those in need, we might do well to ask Toby Porter’s question more often.

Paul Niehaus is Associate Professor of Economics at University of California, San Diego.Michael Faye and Paul Niehaus, co-founders of GiveDirectly and Segovia Technology, co-authored this article. This article is published courtesy of The Conversation (under Creative Commons-Attribution/No derivatives.