Targeting Disaster Aid: A Structural Evaluation of a Large Earthquake Reconstruction Program

Abstract

This paper studies the question of how to target aid after a natural disaster. Disaster aid programs often use property damage as a criterion for eligibility. A household’s ability to insure against shocks may be harder to observe but more important in determining how the disaster affects welfare. We develop a model of household demand for reconstruction aid and estimate the model parameters using data from a household survey following the 2015 Nepal earthquake and moments derived from a spatial regression discontinuity design. We use the model to estimate welfare from counterfactual targeting strategies. Conditioning aid on property damages increases welfare by 6% relative to a random allocation, but a geographically targeted aid strategy based on earthquake intensity would have increased welfare by more.We also show that policymakers face trade-offs between targeting strategies aimed at consumption smoothing and those prioritizing poor households. Notably, damage-based targeting proves ineffective in reaching poor households.