Sustainability, Limited Substitutability, and Non-Constant Social Discount Rates

Posted: 27 May 2013

See all articles by Christian P. Traeger

Christian P. Traeger

University of California, Berkeley; University of Oslo - Department of Economics (ESOP); ifo Institute - Leibniz Institute for Economic Research; University of Oslo - Ragnar Frisch Centre for Economic Research

Date Written: September 1, 2011

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.

Keywords: Environmental discount rate, Hyperbolic, Limited substitutability, Non-constant discounting, Project evaluation, Social discount factor, Social discount rate

JEL Classification: D61, D90, H43, Q01, Q20, Q51

Suggested Citation

Traeger, Christian P., Sustainability, Limited Substitutability, and Non-Constant Social Discount Rates (September 1, 2011). Journal of Environmental Economics and Management, Vol. 62, No. 2, 2011. Available at SSRN: https://ssrn.com/abstract=2056116

Christian P. Traeger (Contact Author)

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

University of Oslo - Department of Economics (ESOP) ( email )

Moltke Moes vei 31
Oslo, 0851
Norway

ifo Institute - Leibniz Institute for Economic Research ( email )

Poschinger Str. 5
Munich, 81679
Germany

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

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