Social hierarchies and the allocation of development aid: Evidence from the 2015 earthquake in Nepal

We study the role of discrimination and in-group biases in the allocation of public funds by community-based committees. Specifically, we investigate the effect of caste hierarchies on the amount of emergency aid given to households after the 2015 earthquake in Nepal. Local committees allocated aid immediately after the earthquake, and –officially– the amount of aid was a function of the magnitude of the housing damage. To identify discrimination and in-group favoritism in this context, we utilize rich data on house characteristics and housing damage and exploit exogenous variation in earthquake intensity. We first provide evidence for caste-based discrimination by these committees: Upper caste households received more aid than lower caste households. Second, we find in-group favoritism among upper caste households: Upper caste households received more aid if individuals from their own (upper) caste were involved in the allocation of aid. In contrast, lower caste households did not benefit from the presence of their own (lower) caste representatives in aid allocation committees. The results highlight the importance of social hierarchies in the study of favoritism and contribute to a better understanding of social structure for the implementation of development policy.