Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 759: Can the environment be an inferior good? A theory with context-dependent substitutability and needs
Marion Dupoux (marion.dupoux@economics.gu.se) and Vincent Martinet
Additional contact information
Marion Dupoux: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 GÖTEBORG, Sweden
Vincent Martinet: Economie Publique, AgroParisTech, INRA, University of Paris-Saclay
Abstract: Theoretical models often assume the environment to be a normal good, irrespective of one’s income. However, a priori, nothing prohibits an environmental good from being normal for some individuals and inferior for others. We develop a conceptual framework in which private consumption and an environmental public good act as substitutes or com-plements for satisfying different needs. Subsequently, the environment can switch between normal and inferior depending on one’s income and environment. If the environment is in-ferior for some range of income, then the willingness to pay for environmental preservation becomes non-monotonic, thereby having implications for benefit transfers.
Keywords: substitutability; environmental public goods; context; willingness to pay; inferior goods; needs
43 pages, April 2019
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