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Ecological Vulnerability Through Insurance? Potential Unintended Consequences of Livestock Drought Insurance

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  • John, Felix
  • Toth, Russell
  • Frank, Karin
  • Groeneveld, Jürgen
  • Müller, Birgit

Abstract

Increasingly frequent and severe droughts pose one of the greatest challenges for dryland pastoralists in the Horn of Africa. Livestock drought insurance (LDI) has been proposed as a means to manage these risks. However, LDI may have unintended side effects, such as inducing unsustainable herd sizes leading to long-term pasture degradation. These issues are infeasible to study empirically given that none of the emerging LDI programs has existed at scale for any extended period of time. Thus, we study the potential long-term effects of LDI on pasture conditions at scale with the help of an agent-based model. We particularly consider the possibility that if insurance is taken up at scale, the quick herd size recovery that insurance enables after droughts can disrupt natural pasture recovery dynamics, with the potential to degrade the long-run carrying capacity of the vegetation. Our results show that, especially if pastures are very sensitive to grazing, insurance can indeed cause and/or intensify ecological instability. Furthermore, unfortunately, these unintended ecological consequences are most likely where insurance is needed the most. Designing the insurance product in the light of these insights may dampen these effects.

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  • John, Felix & Toth, Russell & Frank, Karin & Groeneveld, Jürgen & Müller, Birgit, 2019. "Ecological Vulnerability Through Insurance? Potential Unintended Consequences of Livestock Drought Insurance," Ecological Economics, Elsevier, vol. 157(C), pages 357-368.
    • Handle: RePEc:eee:ecolec:v:157:y:2019:i:c:p:357-368
    DOI: 10.1016/j.ecolecon.2018.11.021
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    Cited by:

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    2. Xingming Yuan & Bing Guo, 2022. "Dynamic Monitoring of the Ecological Vulnerability for Multi-Type Ecological Functional Areas during 2000–2018," Sustainability, MDPI, vol. 14(23), pages 1-24, November.
    3. Nguyen Phuc Canh & Udomsak Wongchoti & Su Dinh Thanh, 2021. "Does economic policy uncertainty matter for insurance development? Evidence from 16 OECD countries," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 46(4), pages 614-648, October.
    4. Meike Will & Jürgen Groeneveld & Karin Frank & Birgit Müller, 2021. "Informal risk-sharing between smallholders may be threatened by formal insurance: Lessons from a stylized agent-based model," PLOS ONE, Public Library of Science, vol. 16(3), pages 1-18, March.
    5. Wilcox, Steven W. & Barrett, Christopher B. & Jensen, Nathaniel & Sun, Ying & Clark, Patrick & Soto, Gerardo E. & Kahiu, Njoki & Fava, Francesco P. & Porter, Benjamin, 2023. "The Environmental Impacts of Microfinance: An Empirical Study of Index-Based Livestock Insurance and East African Rangelands," 2023 Annual Meeting, July 23-25, Washington D.C. 335917, Agricultural and Applied Economics Association.
    6. Pengfei Liu & Lingling Hou & Dongqing Li & Shi Min & Yueying Mu, 2021. "Determinants of Livestock Insurance Demand: Experimental Evidence from Chinese Herders," Journal of Agricultural Economics, Wiley Blackwell, vol. 72(2), pages 430-451, June.
    7. Williams, T.G. & Guikema, S.D. & Brown, D.G. & Agrawal, A., 2020. "Resilience and equity: Quantifying the distributional effects of resilience-enhancing strategies in a smallholder agricultural system," Agricultural Systems, Elsevier, vol. 182(C).

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