Ignacio Oliva

Global warming, ecological decline and inequalities are interconnected, yet rarely jointly. We investigate how damages to the environment change the social cost of inequalities, and how inequalities influence the social value of ecosystem services. We show that the answer depends on two parameters: inequality aversion, and substitutability between market goods and environmental goods. When both parameters are high, inequality increases the marginal value of the environment. This is not always the case when both parameters are low. We quantify this interaction by building a climate-economy model that includes ecosystem services and features both national and international inequalities. In our main calibration, the presence of national inequality doubles the marginal social cost of damages to the environment, while cross-country inequalities only cause a small increase. Overall, our findings show that the interactions of inequalities and ecosystem services can be quantitatively important for the assessment of conservation, climate, or redistributive policies.