Long-Term Substitutability between Environmental and Man-Made Goods

Substitutability between environmental and man-made goods plays a major role in the sustainability debate. The notion of substitutability covers a continuous spectrum, with perfect substitutability at one end and poor substitutability at the other. In this paper, it is shown that, if economic growth sustains, a sharp distinction emerges between perfect and poor substitutability, without any intermediate interpretation of substitutability. If poor substitutability prevails, environmental resources will eventually constitute the major part of total consumption value. We relate our results to “Baumol's disease,” and assess the implications of this phenomenon for the compensation of environmental losses.