Environmental Defensive Expenditures and Households Behavior in Italy

The paper explores the role of Environmental Defensive Expenditures in the consumption behaviour of Italian households. Environmental Defensive Expenditures are not borne to increase households' welfare, but to prevent or avoid the effects of a worsening environmental quality. The literature on environmental accounting argues that economic growth in industrialized countries is accompanied by an increasing load of defensive activities that may lead to a reorientation of consumption behaviour. In this work this hypothesis is tested using annual data on mean consumption expenditures of Italian households from 1985 to 1996. A complete system of demand is estimated and short-run price elasticities of demand for Defensive Expenditures are calculated. The complete system of demand functions is specified using the Quadratic Almost Ideal Demand System proposed by Banks, Blundell and Lewbel. Results show that there is very low substitution between the demand for the six aggregate goods in which total expenditure is here divided and the Environmental Defensive Expenditures. Thus it seems that an increase in Environmental Defensive Expenditures, driven by a change in environmental quality, would not lead to a change in the consumption pattern, at least as far as Italian households are concerned.