Subsistence, Substitutability and Sustainability in Consumption

Baumgärtner, Stefan, Drupp, Moritz A. and Quaas, Martin (2015) Subsistence, Substitutability and Sustainability in Consumption Environmental and Resource Economics . pp. 1-20. DOI 10.1007/s10640-015-9976-z.

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Abstract

We propose a representation of individual preferences with a subsistence requirement in consumption, and examine its implications for substitutability and sustainability. Specifically, we generalize the standard constant-elasticity-of-substitution (CES) utility specification for manufactured goods and environmental services, by adding a subsistence requirement for environmental services. We find that the Hicksian elasticity of substitution strictly monotonically increases with the consumption of environmental services above the subsistence requirement, and approaches the standard CES value as consumption becomes very large. Whether the two goods are market substitutes depends on the level of income. We further show that the subsistence requirement may jeopardize the existence of an intertemporally optimal and sustainable consumption path. Our results have important implications for growth, development and environmental policy.

Document Type: Article
Research affiliation: Kiel University
OceanRep > The Future Ocean - Cluster of Excellence > FO-R01
Refereed: Yes
DOI etc.: 10.1007/s10640-015-9976-z
ISSN: 1573-1502
Date Deposited: 30 Jan 2017 10:35
Last Modified: 22 Mar 2017 14:19
URI: http://eprints.uni-kiel.de/id/eprint/35521

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