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Environmental and Resource Economics

, Volume 69, Issue 1, pp 135–158 | Cite as

Limits to Substitution Between Ecosystem Services and Manufactured Goods and Implications for Social Discounting

  • Moritz A. DruppEmail author
Article

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 Subsistence Sustainability 

JEL Classification

Q01 Q57 H43 D61 D90 

Notes

Acknowledgments

I am very grateful to Stefan Baumgärtner, Ben Groom and Martin Quaas for their support. Furthermore I thank Mikolaj Czajkowski, Simon Dietz, Reyer Gerlagh, Christian Gollier, David Löw-Beer, Frikk Nesje, Eric Neumayer, Martin Persson, Paolo Piacquadio, Till Requate, Felix Schläpfer, Gregor Schwerhoff, Thomas Sterner and participants at the 2014 SURED, the 2014 WCERE and the IfW Centenary Conference for helpful comments. Financial support from the German National Academic Foundation, the DAAD and the BMBF under grant 01LA1104C is gratefully acknowledged.

Compliance with Ethical Standards

Conflict of interest

The author declares no conflict of interest

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Copyright information

© Springer Science+Business Media Dordrecht 2016

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of KielKielGermany
  2. 2.Department of Geography and EnvironmentLondon School of Economics and Political ScienceHoughtonUK

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