Matthew Gordon

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 a household survey following the 2015 Nepal earthquake. Key model predictions are validated using a spatial regression discontinuity design. We use the model to estimate welfare from counterfactual targeting strategies. Conditioning aid on property damages does not significantly improve welfare relative to allocating aid randomly. An untargeted approach that divides the aid budget equally among all households in the affected areas yields larger welfare gains. Using resources to assess property damages for targeting purposes may not be cost effective.