Humanitarian Response to Disasters with Funding Uncertainty: Alleviating Deprivation with Bridge Finance

Abstract

Agencies that provide relief to disaster survivors raise funds from diversified sources, such as foundations, private donors, and lenders. The output of a relief operation, such as lives saved, is a function of several factors: disaster intensity, relief agency's effectiveness, and the size of donor fund. In an uncertain funding environment with delays, a stop‐gap loan can help decrease deprivation at the onset of disaster. When funding materializes, surplus fund net of loan and interest facilitates a second relief operation. We analyze a multistage framework in a game‐theoretic context to study the decisions of the parties involved: relief agency (loan sought and effectiveness), lender (interest rate), and donor (funding level). We find that the size of loan increases in funding delay, even though the lender increases interest rate. The donor increases funding to ensure a larger fund availability (net of loan and interest). While the uncertainty in funding delay motivates the relief agency to seek a larger loan, we find that the maximum number of survivors receiving aid decreases. In case of logistics delays, we find that the speed of response decreases in disaster intensity, enabling a larger number of survivors to receive aid as the cost of logistics decreases. It also increases the loan size and donor funding. However, the relief agency fails to cover all survivors if the disaster intensity is large as the response speed does not decrease below a threshold.