Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/130170
Authors: 
Drupp, Moritz A.
Year of Publication: 
2016
Series/Report no.: 
Economics Working Paper, Christian-Albrechts-Universität Kiel, Department of Economics 2016-05
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 their consumption 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.
Subjects: 
Limited substitutability
Dual discounting
Ecosystem services
Subsistence
Project evaluation
Sustainability
JEL: 
Q01
Q57
H43
D61
D90
Document Type: 
Working Paper

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