A central challenge in development involves ensuring that humanitarian and development aid reaches those in greatest need. Aid agencies typically try to achieve this by targeting aid to vulnerable individuals or groups. Despite the prevalence of targeting, we know little about its effects on distributional outcomes and social cohesion in communities where some are intended to benefit and others are excluded. We investigate this by formalizing targeting as a bargaining game with coalition formation involving three players—the target group, the elite, and an excluded group. We find that whether more aid reaches the target group depends on competition between elites and the excluded group. We provide support for predictions using a regression discontinuity design and original survey data from an aid program implemented in Aceh, Indonesia. This paper demonstrates the importance of understanding the role of community dynamics in shaping the economic and social outcomes of targeted aid programs.