/foo/bar/baz/.dir-locals.el
/foo/bar/.dir-locals.el
/foo/.dir-locals.el

(defun file-name-directory-nesting-helper (name previous-name accumulator)
  (if (string= name previous-name)
      accumulator                       ; stop when names stop changing (at the top)
      (file-name-directory-nesting-helper
       (directory-file-name (file-name-directory name))
       name
       (cons name accumulator))))

(defun file-name-directory-nesting (name)
  (file-name-directory-nesting-helper (expand-file-name name) "" ()))

(file-name-directory-nesting "/foo/bar/baz/quux/foo.el")
;; => ("/" "/foo" "/foo/bar" "/foo/bar/baz" "/foo/bar/baz/quux" "/foo/bar/baz/quux/foo.el")

(defun hack-dir-local-variables-chained-advice (orig)
  "Apply dir-local settings from the whole directory hierarchy,
from the top down."
  (let ((original-buffer-file-name (buffer-file-name))
        (nesting (file-name-directory-nesting (or (buffer-file-name)
                                                  default-directory))))
    (unwind-protect
        (dolist (name nesting)
          ;; make it look like we're in a directory higher up in the
          ;; hierarchy; note that the file we're "visiting" does not
          ;; have to exist
          (setq buffer-file-name (expand-file-name "ignored" name))
          (funcall orig))
      ;; cleanup
      (setq buffer-file-name original-buffer-file-name))))

(advice-add 'hack-dir-local-variables :around
            #'hack-dir-local-variables-chained-advice)