TY - UNPB

T1 - Subsistence and substitutability in consumer preferences

AU - Baumgärtner, Stefan

AU - Drupp, Moritz

AU - Quaas, Martin F.

PY - 2013/12

Y1 - 2013/12

N2 - We propose a new three-step model-selection framework for size distributionsin empirical data. It generalizes a recent frequentist plausibility-of-t analysisWe propose a formal description of individual preferences that captures asubsistence requirement in consumption in an otherwise standard constant-elasticity-ofsubstitution (CES) utility specification. We study how substitutability between the subsistence good and another good depends on the subsistence requirement and the level of consumption of the two goods. We find that the Hicksian elasticity of substitution is zero below the subsistence consumption level, and approaches the standard non-subsistence CES value as consumption of the subsistence good goes to infinity. Above the subsistence threshold, it strictly monotonically increases with income. Whether the two goods are market substitutes or complements depends on, besides the CES-substitutability parameter, the level of income and the subsistence requirement. Our result that with a subsistence requirement substitutability between different consumption goods is nonconstant but increases with individual income has important implications for growth, development and environmental policy.

AB - We propose a new three-step model-selection framework for size distributionsin empirical data. It generalizes a recent frequentist plausibility-of-t analysisWe propose a formal description of individual preferences that captures asubsistence requirement in consumption in an otherwise standard constant-elasticity-ofsubstitution (CES) utility specification. We study how substitutability between the subsistence good and another good depends on the subsistence requirement and the level of consumption of the two goods. We find that the Hicksian elasticity of substitution is zero below the subsistence consumption level, and approaches the standard non-subsistence CES value as consumption of the subsistence good goes to infinity. Above the subsistence threshold, it strictly monotonically increases with income. Whether the two goods are market substitutes or complements depends on, besides the CES-substitutability parameter, the level of income and the subsistence requirement. Our result that with a subsistence requirement substitutability between different consumption goods is nonconstant but increases with individual income has important implications for growth, development and environmental policy.

KW - Economics

KW - Nachhaltigkeitsökonomie

KW - subsistence in consumptio

KW - substitutability

KW - Hicksian elasticity of substitution

KW - Stone-Geary function

KW - Sustainability Economics

KW - subsistence in consumption

KW - substitutability

KW - Hicksian elasticity of substitution

KW - Stone-Geary function

M3 - Working papers

T3 - University of Lüneburg Working Paper Series in Economics

BT - Subsistence and substitutability in consumer preferences

PB - Institut für Volkswirtschaftslehre der Universität Lüneburg

CY - Lüneburg

ER -