Endogenizing the Costs of Climate-Induced Violence in the Optimal Management of the Climate: A MERGE Modeling Approach
A previous version of this paper appeared in the following report: Shen, S. V. (2019). Pricing Carbon to Contain Violence. In The First International Research Conference on Carbon Pricing (pp. 331–348). Washington, D.C.: World Bank. URL: https://openknowledge.worldbank.org/handle/10986/32746
42 Pages Posted: 26 Jun 2019 Last revised: 4 Aug 2020
Date Written: March 23, 2017
Violence imposes an estimated annual total cost equivalent to 11 percent of the world’s GDP. However, violence has rarely appeared in economic models partly because it is exceptionally challenging to do. In the meantime, scientific evidence points to an active link between climate change and the incidence of interpersonal and inter-group violence. This paper connects the climate-economy and the climate-violence systems by putting forth a new method to endogenize the costs of climate-induced violence in the optimal management of the climate. Using the established MERGE integrated assessment model, I find that based on the median estimates of the climate-violence relationship, such internalization can roughly double the optimal carbon price consistently over time in most sensitivity scenarios. To further account for the uncertainty around the magnitude of violence damage as a result of temperature rise, I find that based on high-bound estimates, the optimal carbon prices are projected to rise to between six and eight times those in the business-as-usual scenario. Normatively, sub-Saharan Africa is estimated to avoid damages related to climate-induced violence that is worth 1 percent of the regional GDP in 2050, 9 percent in 2100, and 27 percent in 2200. These are very significant figures for an area that is already riddled with underdevelopment and violence. The approach of this paper is a first for the modeling community, indicating directions for future research. For the policy community, this paper takes recent econometric findings to the next step toward understanding required for decisions.
Keywords: carbon externality, climate management, climate impact, violence, avoided damages, integrated assessment modeling
JEL Classification: P48, Q54
Suggested Citation: Suggested Citation