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The economic insurance value of ecosystem resilience

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  • Stefan Baumgärtner

    () (Sustainability Economics Group, Department of Sustainability Sciences, Leuphana University of Lüneburg, Germany)

  • Sebastian Strunz

    (Sustainability Economics Group, Department of Sustainability Sciences, Leuphana University of Lüneburg, Germany)

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    Abstract

    Ecosystem resilience, i.e. an ecosystem’s ability to maintain its basic functions and controls under disturbances, is often interpreted as insurance: by decreasing the probability of future drops in the provision of ecosystem services, resilience insures risk-averse ecosystem users against potential welfare losses. Using a general and stringent definition of “insurance” and a simple ecological-economic model, we derive the economic insurance value of ecosystem resilience and study how it depends on ecosystem properties, economic context, and the ecosystem user’s risk preferences. We show that (i) the insurance value of resilience is negative (positive) for low (high) levels of resilience, (ii) it increases with the level of resilience, and (iii) it is one additive component of the total economic value of resilience.

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    Bibliographic Info

    Paper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 132.

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    Length: 38 pages
    Date of creation: Jul 2009
    Date of revision:
    Handle: RePEc:lue:wpaper:132

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    Web page: http://leuphana.de/institute/ivwl.html

    Related research

    Keywords: ecosystem; economic value; insurance; resilience; risk; risk preferences;

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    1. Charles Perrings & David Stern, 2000. "Modelling Loss of Resilience in Agroecosystems: Rangelands in Botswana," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(2), pages 185-210, June.
    2. Karl-Göran Mäler, 2008. "Sustainable Development and Resilience in Ecosystems," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(1), pages 17-24, January.
    3. Quaas, Martin F. & Baumgärtner, Stefan, 2008. "Natural vs. financial insurance in the management of public-good ecosystems," Ecological Economics, Elsevier, vol. 65(2), pages 397-406, April.
    4. Bruno Jullien & Georges Dionne & Bernard Caillaud, 2000. "Corporate insurance with optimal financial contracting," Economic Theory, Springer, vol. 16(1), pages 77-105.
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