Addressing the refugee migration crisis via economic policy: evaluation of a tradable refugee-admission quota system

By Tom Perfrement

Tom attended the 2016 World Bank and IMF Annual Meetings in Washington D.C. He is a UNSW Co-op Scholar studying a Bachelor of Chemical Engineering (Honours).

Abstract

The World Bank and International Monetary Fund (IMF) represent a unique concentration of economic power and leadership and can directly influence the response to the global migration crisis.  The number of refugees fleeing Syria has created economic and social pressures in the European Union (EU) where asylum seeker policy has failed to effectively allocate costs and responsibilities. The asymmetry of refugee hosting worldwide may also have created circumstances for further destabilization in the Middle East and extremist violence in Europe and this has led to calls for global action and further EU policy reform.

This policy paper evaluates the potential of a tradable refugee admission quota system (TRAQS) as an economically grounded market-based solution to the refugee crisis. Via a SWOT style analysis, the value of such a system is revealed in cost-efficiency advantages, incentive compatibility and equitability to all participating nations. The inclusive nature of the World Bank and IMF presents an ideal forum to monitor a TRAQS model. Ultimately, implementation must be structured around a number of fundamental legal and institutional principles, including international solidarity.

Proposed Recommendations

The European Commission should refocus on reform of the Common European Asylum System (CEAS), with key considerations placed on economic efficiency, timeliness and fairness. The June 2015 European Council returned a stalemate and the distribution of refugees across member states remained undedecided [1]. Emphasis must be re-directed to initiatives discouraging secondary asylum seeker movements and incentivizing larger refugee intakes [2]. In April 2016, a package of reforms was launched and although these reforms are well intentioned, it is the authors opinion that they are not suitable for allowing flexibility of refugee hosting across nations.

A market based mechanism system for refugee settlement such as a TRAQS, should be considered for implementation at the European Union, as a starting point for global enactment. A coordinated global effort to assist the refugee crisis via implementation of a TRAQ system will provide expeditious assistance for refugees and their families. Via such a system, welcoming countries are rewarded for their generosity. The system also has the advantage of cost-efficiency, incentive compatibility (in that migrant preferences are taken into account) and fairness in responsibility. Further, it would reduce the burden of fiscal shocks and increased demand on services and infrastructure [3]. It is proposed that an initial implementation by the European Commission would be a a step towards a global benchmark for international protection.

The International Finance Corporation arm of the World Bank should extend its capabilities to implement and monitor a TRAQS market-based mechanism. This arm of the World Bank is well placed to facilitate a TRAQS scheme as its existing mandate is to mobilize capital in international financial markets. Beyond this, successful application of such a system would require the co-ordination of a number of international organizations, including the UN.

Introduction & Background

The civil war in Syria has created enormous unrest across the Middle East and globally the world faces a migration crisis on a scale unprecedented since World War II [4]. Further, current geopolitical tensions suggest the flow of asylum seekers may persist for an extended period of time. The EUs proximity to Syria means it is bearing the brunt of a rising share of asylum seekers fleeing the ongoing civil war and more than one million refugees and migrants arrived in European countries in 2015 [5].  The EU has struggled to coordinate a clear and fair resettlement process and the current EU Dublin system for refugee allocation led to hightened responsibility on nations neighbouring the affected region [6]. Coupled with divergent national responses to the crisis, this has led to an asymmetrical sharing of the economic, social and political costs emanating from the crisis.  This unequal burden has placed significant attention on the development of more reasonable and equitable migration policy solutions and led to calls for reform to the Common European Asylum System (CEAS). The issue is also poltically contentious as narratives around race and culture tinge the discussion. It has been suggested that a failure to provide adequate support to refugees and a continuation of an asylum policy which does not equitably allocate costs across Member States may lead to further destabilization of the entire region [3].

EU Asylum Policy

In 2014, Europe received 32 percent of global asylum applications, making it the focal point of the refugee crisis [4]. Member States of the European Union are governed by the CEAS and the Dublin convention where asylum claims are made to the first member state the applicant reached upon entering the EU. This system is not supported by the European Council on Refugees and Exiles (ECRE) nor the UN Refugee Agency (UNHCR) [2]. The current system does not provide fair examination of an asylum claim and lacks transparency and procedural expediciency [6]. It has also led to political coercion and an imbalanced distribution of asylum claims between Member States [5, 6].

Consequently, Sweden and Germany have taken the issue into their own hands, with the CEAS and the Dublin system no longer being systematically applied. Frontline states have begun ignoring Dublin Regulations and this has allowed significant numbers of migrants and refugees to transit through these countries unregistered [5]. The lack of political will and international solidarity to provide a coordinated response has led to differing standards and bottleneck pressures. In 2015, the EU launched the European Agenda on Migration, which outlined a “temporary distribution scheme for persons in clear need of international protection to ensure a fair and balanced participation of all Member States to this common effort” [3]. 

Tradable Refugee Admission Quota System

Considering the politized nature of the crisis, in recent years the focus has shifted to economic solutions to refugee admissions in the EU [3, 4, 6]. A TRAQ system presents an economic approach to refugee allocation using a market mechanism and matching mechanism to ensure refugee preferences are considered. The use of a market mechanism to incentive action and support a global public good is not a new concept and has been used in a variety of contexts including carbon pricing mechanisms [7]. Ultimately a market mechanism allows for the greatest total number of refugees to be allocated for a given cost [6].

Component 1: The Distribution Key

Moraga and Rapoport [3] outlined three key components of a TRAQ system. The determination of refugee quotas via a distribution key is the first component. This could be achieved in a similar fashion to the proposed European Commission key whereby a refugee quota is be determined for a given country (i) by population size (Pi), GDP(Gi), unemployment rate (Ui) and prior history of resettled refugees per million inhabitants (Hi).  In equation [1] below, S refers to the scaling factor and is equal to 40% for each of Sp and Sg and 10% for Su and Sh (according to the proposed European Comission key). Ri refers to the proportion of the total refugees that should be allocated as a quota to country i, where n is the total number of countries participating in the allocation (see Equation [2]).

Whilst the definition of a distribution key from the European Commission is a move in the right direction, as it assigns responsibility due to objective factors relating to the capacity of the country,  alone it is insufficient. A TRAQ system adds two further components to a refugee quota.

Component 2: The Market Mechanism

The second element of the TRAQ system is that of a market mechanism to enable flexibility and create incentives for states able to accommodate more refugees.  A matching mechanism allows countries to contribute by either, (a) financial compensation beyond the incurred hosting costs or (b) quota sharing through reciprocal financial contributions.  

A simple example of this situation is depicted in Figure 1, which highlights a hypothetical situation of a market mechanism in action. Assume that Australia and New Zealand participate in an agreement to settle a given quantity of refugees represented by the distance between and QNZ and QA that the initial distribution key determines that the quota of refugees falls at the point E initial. The marginal cost of hosting refugees in Australia is represented by the blue line and increases from the left to right. Conversely, the marginal cost of hosting refugees in New Zealand is represented by the purple line and increases from right to left. Both curves are exponentional in nature due to the law of diminishing returns [8].  The intersection of the two marginal costs curves occurs at the point R equil and represents the refugee quota distribution between the two nations which would lead to the minimum total marginal cost. A market for refugee trading would establish an equilibrium quota price at this intersection [6].

Consequently, in this simulation, New Zealand would be able to finance Australia to host an additional number of refugees represented as the difference between R equil and R initial at a price P equil, saving a total cost represented by area z. Australia would accommodate the increased intake at a cost represented by area x and would receive the financing from New Zealand in excess of this cost represented by area x and y.  For the given total number of refugees in this system, the existence of the market mechanism results in a total marginal cost saving graphically represented by the areas z and y.

Figure 1: Graphical Representation of a TRAQ System Allocating Refugees Between Host Nations Australia and New Zealand.

Figure 1: Graphical Representation of a TRAQ System Allocating Refugees Between Host Nations Australia and New Zealand.

Component 3: Matching Mechanism

The third component of a TRAQ system is the humanitarian component, which allows refugee preferences to be considered via a matching mechanism. Candidates would be ranked in a random order and assigned to their first preference until that quota is filled and a candidate is moved to their second preference and so on [3]. Likewise, host nations would also express preferences as to the ‘type’ (such as family status or nationality) of refugee they would like to host via a bidding system. It is envisaged this will lead to better long-term integration [6]. However, it is also noted that such a mechanism allowing countries to ‘cherry pick’ is opposed by the UNHCR and the refugee council [9].

TRAQS Evaluation

The combination of these three components presents a unique economic approach to resettlement of asylum seekers, with a number of advantages beyond cost implications (see
Table 1: Strengths Weaknesses Opportunities Threats (SWOT) Analysis of a TRAQ System).

Table 1: Strengths Weaknesses Opportunities Threats (SWOT) Analysis of a TRAQ System

Table 1: Strengths Weaknesses Opportunities Threats (SWOT) Analysis of a TRAQ System

Implementation

Despite the clear economic and humanitarian value of a market based mechanism for allocating refugee quotas such as the TRAQ system outlined, a number of obstacles currently obstruct the path to global or regional implementation of such a system. These barriers include the need for international agreement and the co-operation of a number of international organisation including the World Bank and United Nations. Further, the implementation of such a system must be designed around a number of fundamental legal and institutional principles, including international solidarity.

However, it is evident that elements of a TRAQ system have already found their way into asylum policy. Most host countries currently decide on a number of refugees to resettle from the UNHCR on a voluntary basis during the so-called “Annual Tripartite Consultations” in Geneva [10]. In European Comission legistlation of September 2015, the first steps towards a matching mechanism were introduced with the statement of“while applicants do not have a right to choose the Member State of their relocation, their needs, preferences and specific qualification should be taken into account to the extent possible” amended to the legislation [10]. Whilst a market mechanism for tradable refugee quotas is currently not in practice, there are numerous historical instances in which a nation has made a financial payment to another country for taking excess share [10].

It is recommended that the TRAQ system should be considered for implementation by the European Commission and first implemented with a small number of countries voluntarily willing to participate. This would provide insight on the matching and market mechanisms and pave the way for expansion of the program to additional countries willing to commit.  It is envisaged that the International Finance Corporation of the World Bank would be well placed to facilitate the market based mechanism – an extension of its existing mandate to mobilize capital in international financial markets.

Conclusion

The enormity of the refugee crisis stemming from Syria requires international attention from a range of organisations, including the World Bank and IMF. Within the context of the rising tide of refugee numbers and increasing dissention towards existing European refugee admission policy, it is imperative that reform of the Common European Asylum System takes place. A tradable refugee-admission quota system has been evaluated to be an economically grounded, flexible, equitable and de-politicized solution to asylum policy. With the assistance of the International Finance Corporation arm of the World Bank, a market based system such as a TRAQS, should be considered for implementation at the European Union, as a starting point for global enactment. The price for inaction is high as a failure to efficiently allocate costs and responsibilities across member states may act as a tipping point towards further destabilization beyond the Middle East.

Reference List

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