Journal
ENVIRONMENTAL & RESOURCE ECONOMICS
Volume 67, Issue 1, Pages 47-66Publisher
SPRINGER
DOI: 10.1007/s10640-015-9976-z
Keywords
Elasticity of substitution; Environmental services; Stone-Geary function; Subsistence in consumption; Substitutability
Categories
Funding
- German Federal Ministry of Education and Research [01LA1104C]
- German National Academic Foundation
- German Academic Exchange Service (DAAD)
Ask authors/readers for more resources
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.
Authors
I am an author on this paper
Click your name to claim this paper and add it to your profile.
Reviews
Recommended
No Data Available