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Sustainability, limited substitutability, and non-constant social discount rates

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  • Traeger, Christian P.

Abstract

The paper shows how limited substitutability in consumption between different classes of goods affects the magnitude and time development of social discount rates. It decomposes the discount rates into an absolute growth and a relative growth or substitutability effect. The paper relates between-good and intertemporal substitutability to the notions of weak and strong sustainability. It analyzes under which circumstances low as opposed to high between-good substitutability increases the weights given to long-run environmental services.

Suggested Citation

  • Traeger, Christian P., 2011. "Sustainability, limited substitutability, and non-constant social discount rates," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 215-228, September.
  • Handle: RePEc:eee:jeeman:v:62:y:2011:i:2:p:215-228
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    References listed on IDEAS

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    7. Dasgupta, Partha, 2001. "Human Well-Being and the Natural Environment," OUP Catalogue, Oxford University Press, number 9780199247882.
    8. Philibert, Cedric, 1999. "The economics of climate change and the theory of discounting," Energy Policy, Elsevier, vol. 27(15), pages 913-927, December.
    9. Ravi Bansal & Dana Kiku & Amir Yaron, 2010. "Long Run Risks, the Macroeconomy, and Asset Prices," American Economic Review, American Economic Association, vol. 100(2), pages 542-546, May.
    10. Traeger, Christian P., 2011. "Sustainability, limited substitutability, and non-constant social discount rates," Journal of Environmental Economics and Management, Elsevier, vol. 62(2), pages 215-228, September.
    11. Fisher, Anthony C & Krutilla, John V & Cicchetti, Charles J, 1972. "The Economics of Environmental Preservation: A Theoretical and Empirical Analysis," American Economic Review, American Economic Association, vol. 62(4), pages 605-619, September.
    12. Gollier, Christian, 2002. "Time Horizon and the Discount Rate," Journal of Economic Theory, Elsevier, vol. 107(2), pages 463-473, December.
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    Citations

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    Cited by:

    1. W. Botzen & Jeroen Bergh, 2014. "Specifications of Social Welfare in Economic Studies of Climate Policy: Overview of Criteria and Related Policy Insights," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(1), pages 1-33, May.
    2. Gollier, Christian, 2012. "A theory of rational short-termism with uncertain betas," LERNA Working Papers 12.14.371, LERNA, University of Toulouse.
    3. Gollier, Christian, 2010. "Ecological discounting," Journal of Economic Theory, Elsevier, vol. 145(2), pages 812-829, March.
    4. repec:kap:enreec:v:69:y:2018:i:1:d:10.1007_s10640-016-0068-5 is not listed on IDEAS
    5. Kollenberg, Sascha & Taschini, Luca, 2016. "Emissions trading systems with cap adjustments," Journal of Environmental Economics and Management, Elsevier, vol. 80(C), pages 20-36.
    6. Kögel, Tomas, 2011. "On the Relation between Discounting of Climate Change and Edgeworth-Pareto Substitutability," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 3, pages 1-12.
    7. Gollier, Christian, 2012. "Asset pricing with uncertain betas: A long-term perspective," IDEI Working Papers 752, Institut d'Économie Industrielle (IDEI), Toulouse.
    8. Echazu Luciana & Nocetti Diego & Smith William T., 2012. "A New Look into the Determinants of the Ecological Discount Rate: Disentangling Social Preferences," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-44, April.
    9. Moritz A. Drupp, 2018. "Limits to Substitution Between Ecosystem Services and Manufactured Goods and Implications for Social Discounting," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(1), pages 135-158, January.
    10. Ubfal, Diego, 2016. "How general are time preferences? Eliciting good-specific discount rates," Journal of Development Economics, Elsevier, vol. 118(C), pages 150-170.
    11. Éva Pálinkó & Márta Szabó, 2012. "Application of Social Discount Rate in Public Projects," Public Finance Quarterly, State Audit Office of Hungary, vol. 57(2), pages 184-199.
    12. Christoph Heinzel, 2014. "Term structure of discount rates under multivariate s-ordered consumption growth," Working Papers SMART - LERECO 14-01, INRA UMR SMART-LERECO.
    13. Lawrence H. Goulder & Roberton C. Williams, 2012. "The Choice Of Discount Rate For Climate Change Policy Evaluation," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 3(04), pages 1-18.
    14. Drupp, Moritz A. & Meya, Jasper N. & Baumgärtner, Stefan & Quaas, Martin F., 2017. "Economic inequality and the value of nature," Economics Working Papers 2017-08, Christian-Albrechts-University of Kiel, Department of Economics.
    15. Larry S. Karp, 2009. "Sacrifice, Discounting and Climate Policy: Five Questions," CESifo Working Paper Series 2761, CESifo Group Munich.
    16. repec:eee:pubeco:v:160:y:2018:i:c:p:33-49 is not listed on IDEAS
    17. Moritz Drupp & Mark Freeman & Ben Groom & Frikk Nesje, 2015. "Discounting disentangled: an expert survey on the determinants of the long-term social discount rate," GRI Working Papers 196a, Grantham Research Institute on Climate Change and the Environment.
    18. repec:kap:enreec:v:67:y:2017:i:1:d:10.1007_s10640-015-9976-z is not listed on IDEAS
    19. Stefan Baumgärtner & Alexandra Klein & Denise Thiel & Klara Winkler, 2015. "Ramsey Discounting of Ecosystem Services," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(2), pages 273-296, June.
    20. Gollier, Christian, 2017. "Valuation of natural capital under uncertain substitutability," TSE Working Papers 17-813, Toulouse School of Economics (TSE).
    21. Yamaguchi, Rintaro, 2012. "Discounting, Distribution and Disaggregation," MPRA Paper 46322, University Library of Munich, Germany.
    22. Drupp, Moritz A. & Hänsel, Martin C., 2018. "Relative prices and climate policy: How the scarcity of non-market goods drives policy evaluation," Economics Working Papers 2018-01, Christian-Albrechts-University of Kiel, Department of Economics.
    23. repec:spr:climat:v:145:y:2017:i:3:d:10.1007_s10584-017-2094-x is not listed on IDEAS
    24. Rintaro Yamaguchi, 2013. "Discounting, Distribution and Disaggregation: Discount Rates for the Rich and the Poor with Climate as a Source of Utility," Scottish Journal of Political Economy, Scottish Economic Society, vol. 60(4), pages 440-459, September.
    25. Defrancesco, Edi & Gatto, Paola & Rosato, Paolo, 2014. "A ‘component-based’ approach to discounting for natural resource damage assessment," Ecological Economics, Elsevier, vol. 99(C), pages 1-9.

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