Daudelin: $5 billion later and 500,000 Haitians still live in tents. Why?

By: /
January 23, 2012

The problem has to do with the structure of incentives of the various players involved.

Because neither the Haitian authorities nor donating countries’ governments really have much at stake in the success or failure of the rescue, 500,000 Haitians still live in tents in spite of all the money that has been spent on trying to deal with their problem. Foreign money was transferred from rich countries under domestic and mutual political pressure to “do something,” and was mostly diverted from other aid and humanitarian envelopes. Most of it would have spent somewhere on something anyway.

Success had little bearing on the political benefits of the endeavour, which were essentially “front-end” and derived from favourable public perceptions of their own government. The Haitian government’s capacity was so dismal to start with that its prospects of successfully claiming significant political benefits from effective action were almost nil. Failure, similarly, has little consequences: its cost was also largely “front-end,” i.e. “failure to act” was the biggest danger. The cost of continuing failure at this point is minimal: donour countries may just decide to put their money elsewhere, and the Haitian government, with reason given the overwhelming role of foreigners in the current effort, can attribute the disaster to the international community. To that very extent, moreover, they have a strong incentive to divert as much money as possible to uses from which they benefit, economically or politically, more directly.

One can spend lots of time on the technical aspects of the reconstruction program, on problems of coordination among donours and on corruption in Haiti. All those obstacles, however, could and would be confronted or bypassed by actors with something at stake. Think of Indonesia and Thailand after the Tsunami. As the existing players’ welfare is detached from the consequences of their decisions and actions about the crisis on the ground, the incentives to confront those sizeable difficulties are simply not there. Solution? Align the incentives. Make somebody powerful benefit a lot from progress and suffer a lot from failure. An obvious starting is to reduce the amount of money transferred.