This dissertation investigated why some groups or communities become poor while others become rich. Using institutional design as a theoretical guidance, the study conducted an in-depth analysis of the socioeconomic disparities between indigenous peoples and caste people in Nepal. The study used multilevel modeling, Geographic Information System (GIS), and ethnography research methods. Indigenous peoples in Nepal were found to be significantly at higher risk of poverty than caste people. Discrimination against indigenous peoples appears to be the key determinant of indigenous poverty. Geographic isolation and proximity to caste people were also significant predictors of indigenous poverty. The study has implication for constitutional design and self-governance of the indigenous peoples as an approach to reducing poverty and inequality.