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Subsistence, Substitutability and Sustainability in Consumption

Stefan Baumgärtner, Moritz Drupp () and Martin Quaas

Environmental & Resource Economics, 2017, vol. 67, issue 1, 47-66

Abstract: 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.

Keywords: Elasticity of substitution; Environmental services; Stone–Geary function; Subsistence in consumption; Substitutability; Sustainability (search for similar items in EconPapers)
JEL-codes: D11 I31 O12 Q01 Q56 (search for similar items in EconPapers)
Date: 2017
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