Pricing adaptation: A simulated study of poverty intervention strategies under climate shocks

Eradicating extreme poverty and inequality is central to the Sustainable Development Goals (SDGs), yet climate change threatens progress by exacerbating wealth disparities and undermining adaptive capacity. This study integrates agent-based modeling with empirical economic analysis to examine how climate adaptation interacts with poverty dynamics. Key findings support recognized systemic vulnerabilities and policy insights. First, wealth-adaptation feedback loops drive divergence, where the wealthy leverage social capital and low-cost financing to accumulate assets, while the poor face underinvestment due to high discount rates and adaptation costs consuming a greater percentage of income. Inefficient investment distributions emerge, where poor households under-invest despite high benefit-cost ratios for adaptation while wealthy agents overinvest, inefficiently distributing resources. Targeted support, subsidized loans, or insurance for the poor can help close this adaptation gap. Second, poor households spend a greater proportion of extra income on consumption, while wealthy households tend to save more, especially when facing climate risks. This behavior increases vulnerability among the poor. Finally, policy simulations demonstrate support for the theory that public-led adaptation subsidies (e.g., equitable infrastructure, innovation networks, and public equity stakes) reduce top-tier wealth concentration while raising minimum wealth (“adaptation floor”). These findings underscore that climate-resilient SDG progress requires disrupting self-reinforcing inequality through state intervention.