Sustainability, Limited Substitutability, and Non-Constant Social Discount Rates
Posted: 27 May 2013
Date Written: September 1, 2011
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
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