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

Drupp, Moritz A. (2016) Limits to substitution between ecosystem services and manufactured goods and implications for social discounting. Environmental and Resource Economics. ISSN 0924-6460

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Identification Number: 10.1007/s10640-016-0068-5

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.

Item Type: Article
Official URL: http://link.springer.com/journal/10640
Additional Information: © 2016 Springer Science+Business Media Dordrecht
Divisions: Geography & Environment
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HC Economic History and Conditions
JEL classification: D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency; Cost-Benefit Analysis
D - Microeconomics > D9 - Intertemporal Choice and Growth > D90 - General
H - Public Economics > H4 - Publicly Provided Goods > H43 - Project Evaluation; Social Discount Rate
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q0 - General > Q01 - Sustainable Development
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q57 - Ecological Economics: Ecosystem Services; Biodiversity Conservation; Bioeconomics
Sets: Departments > Geography and Environment
Collections > Economists Online
Date Deposited: 17 Nov 2016 09:29
Last Modified: 20 Jul 2019 02:20
Projects: 01LA1104C
Funders: German National Academic Foundation, DAAD, BMBF
URI: http://eprints.lse.ac.uk/id/eprint/68298

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