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Natural vs. financial insurance in the management of public-good ecosystems

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  • Quaas, Martin F.
  • Baumgärtner, Stefan

Abstract

In the face of uncertainty, ecosystems can provide natural insurance to risk averse users of ecosystem services. We employ a conceptual ecological-economic model in which ecosystem management has a private insurance value and, through ecosystem processes at higher hierarchical levels, generates a positive externality on other ecosystem users. We analyze the allocation of (endogenous) risk and ecosystem quality by risk averse ecosystem managers who have access to financial insurance, and study the implications for individually and socially optimal ecosystem management, and policy design. We show that while an improved access to financial insurance leads to lower ecosystem quality, the effect on the extent of the public-good problem and on welfare is determined by ecosystem properties. We derive conditions on ecosystem functioning under which, if financial insurance becomes more accessible, (i) the extent of optimal regulation increases or decreases; and (ii) welfare, in the absence of environmental regulation, increases or decreases.

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Bibliographic Info

Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 65 (2008)
Issue (Month): 2 (April)
Pages: 397-406

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Handle: RePEc:eee:ecolec:v:65:y:2008:i:2:p:397-406

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Web page: http://www.elsevier.com/locate/ecolecon

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References

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  1. Olivier Mahul, 2001. "Optimal Insurance Against Climatic Experience," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 593-604.
  2. Skees, Jerry & Varangis, Panos & Larson, Donald & Siegel, Paul, 2002. "Can Financial Markets be Tapped to Help Poor People Cope with Weather Risks?," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  3. JunJie Wu, 1999. "Crop Insurance, Acreage Decisions, and Nonpoint-Source Pollution," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(2), pages 305-320.
  4. Baumgärtner, Stefan & Quaas, Martin, 2005. "The private and public insurance value of conservative biodiversity management," UFZ Discussion Papers 27/2005, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
  5. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
  6. Rauscher, Michael & Barbier, Edward B., 2010. "Biodiversity and geography," Resource and Energy Economics, Elsevier, vol. 32(2), pages 241-260, April.
  7. Yann Bramoullé & Nicolas Treich, 2009. "Can Uncertainty Alleviate the Commons Problem?," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 1042-1067, 09.
  8. Sandler, Todd & Sternbenz, Frederic P., 1990. "Harvest uncertainty and the tragedy of the commons," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages 155-167, March.
  9. Shogren, Jason F. & Crocker, Thomas D., 1999. "Risk and Its Consequences," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 44-51, January.
  10. Eppink, Florian V. & Withagen, Cees A., 2009. "Spatial patterns of biodiversity conservation in a multiregional general equilibrium model," Resource and Energy Economics, Elsevier, vol. 31(2), pages 75-88, May.
  11. Mario Miranda & Dmitry V. Vedenov, 2001. "Innovations in Agricultural and Natural Disaster Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 650-655.
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Citations

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Cited by:
  1. Stefan Baumgärtner & Christian Becker & Karin Frank & Birgit Müller & Martin F. Quaas, 2008. "Relating the Philosophy and Practice of Ecological Economics. The Role of Concepts, Models, and Case Studies in Inter- and Transdisciplinary Sustainability Research," Working Paper Series in Economics 75, University of Lüneburg, Institute of Economics.
  2. Fischer, Beate & Klauer, Bernd & Schiller, Johannes, 2013. "Prospects for sustainable land-use policy in Germany: Experimenting with a sustainability heuristic," Ecological Economics, Elsevier, vol. 95(C), pages 213-220.
  3. Roland Olbrich & Martin F. Quaas & Stefan Baumgaertner, 2012. "Characterizing commercial cattle farms in Namibia: risk, management and sustainability," Working Paper Series in Economics 248, University of Lüneburg, Institute of Economics.
  4. Russell, Noel P. & Omer, Amani A. & Pascual, Unai, 2009. "Technology, preferences and the sustainable intensification of agricultural production," 2009 Conference, August 16-22, 2009, Beijing, China 51743, International Association of Agricultural Economists.
  5. Quaas, Martin F. & Baumgartner, Stefan & Becker, Christian & Frank, Karin & Muller, Birgit, 2007. "Uncertainty and sustainability in the management of rangelands," Ecological Economics, Elsevier, vol. 62(2), pages 251-266, April.
  6. Stefan Baumgärtner & Sebastian Strunz, 2009. "The economic insurance value of ecosystem resilience," Working Paper Series in Economics 132, University of Lüneburg, Institute of Economics.
  7. Sébastien Foudi, 2012. "Exploitation of soil biota ecosystem services in agriculture: a bioeconomic approach," Working Papers 2012-02, BC3.
  8. Jessica Ingenillem & Joachim Merz & Stefan Baumgärtner, 2014. "Determinants and interactions of sustainability and risk management of commercial cattle farmers in Namibia," Working Paper Series in Economics 304, University of Lüneburg, Institute of Economics.
  9. Birgit Müller & Martin Quaas & Karin Frank & Stefan Baumgärtner, 2009. "Pitfalls and potential of institutional change: Rain-index insurance and the sustainability of rangeland management," Working Paper Series in Economics 149, University of Lüneburg, Institute of Economics.
  10. 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.
  11. Omer, Amani & Pascual, Unai & Russell, Noel, 2010. "A theoretical model of agrobiodiversity as a supporting service for sustainable agricultural intensification," Ecological Economics, Elsevier, vol. 69(10), pages 1926-1933, August.
  12. Stefan Baumgärtner & Martin F. Quaas, 2007. "Agro-biodiversity as natural insurance and the development of financial insurance markets," Working Paper Series in Economics 61, University of Lüneburg, Institute of Economics.
  13. Jean-Michel Salles, 2011. "Valuing biodiversity and ecosystem services: why linking economic values with Nature?," Working Papers 11-24, LAMETA, Universtiy of Montpellier, revised Dec 2011.

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