TY - JOUR

T1 - Subsistence, Substitutability and Sustainability in Consumption

AU - Baumgärtner, Stefan

AU - Drupp, Moritz A.

AU - Quaas, Martin F.

PY - 2017/5/1

Y1 - 2017/5/1

N2 - 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.

AB - 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.

KW - Elasticity of substitution

KW - Environmental services

KW - Stone–Geary function

KW - Subsistence in consumption

KW - Substitutability

KW - Sustainability

KW - Sustainability sciences, Management & Economics

UR - http://www.scopus.com/inward/record.url?scp=84944561485&partnerID=8YFLogxK

U2 - 10.1007/s10640-015-9976-z

DO - 10.1007/s10640-015-9976-z

M3 - Journal articles

AN - SCOPUS:84944561485

VL - 67

SP - 47

EP - 66

JO - Environmental and Resource Economics

JF - Environmental and Resource Economics

SN - 0924-6460

IS - 1

ER -