Moving up the Energy Ladder: The Effect of an Increase in Economic Well-Being on the Fuel Consumption Choices of the Poor in India

While the wealth effect from a capital influx would induce households to buy more dirty fuel, they might simultaneously reduce their purchases depending on the degree of substitutability with clean fuels and other consumption. This substitution effect will not necessarily dominate the wealth effect, unless dirty fuels are an inferior good. However, a capital increase could also cause labor to become relatively more productive, discouraging the purchase of any healthdamaging, dirty fuels. Thus, the overall effect on dirty fuel purchases depends on both the substitution effect and the extent to which the health effect matters. Assume that consumption of dirty fuel has a negative effect on health and labor supply, but that clean fuel and other consumption does not.