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
Keywords: Elasticity of Substitution, Environmental Services, Stone–Geary function, Subsistence in consumption, Substitutability
Research affiliation: Kiel University > Kiel Marine Science
OceanRep > The Future Ocean - Cluster of Excellence > FO-R01
Kiel University
Refereed: Yes
Open Access Journal?: No
DOI etc.: 10.1007/s10640-015-9976-z
ISSN: 1573-1502
Projects: Future Ocean
Date Deposited: 30 Jan 2017 10:35
Last Modified: 26 Aug 2019 10:44
URI: http://oceanrep.geomar.de/id/eprint/35521

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