Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Monday, March 14, 2005

How Much Tsunami Aid Will Become Pure Rent?

By the end of February, the rest of the world had raised at least $27 gazillion for tsunami relief. I have begun to wonder how much of this aid will be converted into pure economic rent (as opposed to attracting more resources to the affected areas).

An article from the Sydney Morning Herald raises the same question, but without the economics jargon. (h/t to BF)

Diplomatic and donor organisation sources have told the Herald that there is huge competition between those trying to fill the more prestigious projects in Aceh, such as building schools and roads.

Aid groups are competing to recruit staff from the small pool of Acehnese with the skills needed for the rebuilding. This inflates their salaries enormously. Many of these skilled workers are being poached from jobs with the Indonesian Government, draining its expertise.

The supply curve of skilled workers is probably pretty steep, in the short run, for the affected areas. Building materials and health supplies can be shipped in for roughly the world price plus shipping costs, but trying to attract more skilled workers is very costly. Hence, these workers will earn massive economic rents.
Who Links Here