Limits to substitution between ecosystem services and manufactured goods and implications for social discounting

Moritz Drupp

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper examines implications of limits to substitution for estimating substitutability between ecosystem services and manufactured goods and for social discounting. Based on a model that accounts for a subsistence requirement in the consumption of ecosystem services, we provide empirical evidence on substitution elasticities. We find an initial mean elasticity of substitution of two, which declines over time towards complementarity. We subsequently extend the theory of dual discounting by introducing a subsistence requirement. The relative price of ecosystem services is non-constant and grows without bound as the consumption of ecosystem services declines towards the subsistence level. An application suggests that the initial discount rate for ecosystem services is more than a percentage-point lower as compared to manufactured goods. This difference increases by a further half percentage-point over a 300-year time horizon. The results underscore the importance of considering limited substitutability in long-term public project appraisal.

Keywords: dual discounting; ecosystem services; limited substitutability; project evaluation; sustainability (search for similar items in EconPapers)
JEL-codes: D61 D90 H43 Q01 Q57 (search for similar items in EconPapers)
Date: 2016-10-17
New Economics Papers: this item is included in nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in Environmental and Resource Economics, 17, October, 2016. ISSN: 0924-6460

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http://eprints.lse.ac.uk/68298/ Open access version. (application/pdf)

Related works:
Journal Article: Limits to Substitution Between Ecosystem Services and Manufactured Goods and Implications for Social Discounting (2018)
Working Paper: Limits to substitution between ecosystem services and manufactured goods and implications for social discounting (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:68298

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