Managing increasing environmental risks through agrobiodiversity and agrienvironmental policies
AbstractAgrobiodiversity can provide natural insurance to risk-averse farmers by reducing the variance of crop yield, and to society at large by reducing the uncertainty in the provision of public-good ecosystem services, for example, CO 2 storage. We analyze the choice of agrobiodiversity by risk-averse farmers who have access to financial insurance, and study the implications for agrienvironmental policy design when on-farm agrobiodiversity generates a positive risk externality. While increasing environmental risk leads private farmers to increase their level of on-farm agrobiodiversity, the level of agrobiodiversity in the laissez-faire equilibrium remains inefficiently low. We show how either one of the two agrienvironmental policy instruments can cure this risk-related market failure: an "ex ante" Pigouvian subsidy on on-farm agrobiodiversity and an "ex post" payment-by-result for the actual provision of public environmental benefits. In the absence of regulation, welfare may increase rather than decrease with increasing environmental risk, if the agroecosystem is characterized by a high natural insurance function, low costs, and large external benefits of agrobiodiversity. Copyright (c) 2010 International Association of Agricultural Economists.
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Bibliographic InfoArticle provided by International Association of Agricultural Economists in its journal Agricultural Economics.
Volume (Year): 41 (2010)
Issue (Month): 5 (09)
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- Stefan Baumgärtner & Martin F. Quaas, 2008. "Managing increasing environmental risks through agro-biodiversity and agri-environmental policies," Working Paper Series in Economics 80, University of Lüneburg, Institute of Economics.
- Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
- Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- D62 - Microeconomics - - Welfare Economics - - - Externalities
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