Butter, Guns and Ice Cream Under Climate Shocks: Scarcity Pricing, Predation and Price Stabilization

This preliminary note aims to provide a theoretical model to accommodate the apparent contradictions emerging in the literature on the climate change–violent conflict nexus. In particular it builds on the butter–guns–ice-cream framework of Caruso (2010) to study how climate shocks can influence the emergence of violence between groups when agriculture is the main economic activity. Two groups allocate a fixed endowment between contested agricultural production(“butter”) and coercion (“guns”). The safe activity (“ice cream”) yields diminishing marginal returns and is determined residually by the budget constraint once butter and guns are chosen. A common climate shock shifts agricultural productivity. Allowing exposure to differ across groups generates realized asymmetries in the contested production. In a further extension, the relative price of the contested good responds endogenously to effective scarcity. In fact, the model nests two mechanisms within a unified structure. The first is an opportunity-cost margin, operating through the returns to peaceful activity. The second is a rapacity (prize-value) margin, operating through the value of contested production. We allow conflict to be inconclusive by modeling stalemate in the contest success function. In addition, we introduce endogenous destructiveness, decreasing in aggregate coercion. We also incorporate an institutional-capacity parameter that moderates violence by dampening scarcity-driven price spikes. The analysis proceeds from a benchmark to a sequence of extensions. The benchmark delivers a tractable equilibrium characterization and transparent sufficient conditions for the main comparative statics. The extensions show how endogenous destruction, scarcity pricing, and price stabilization attenuate incentives and generate empirically relevant nonlinearities, without overturning the core sign predictions.