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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)

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. Bruno Jullien & Georges Dionne & Bernard Caillaud, 2000. "Corporate insurance with optimal financial contracting," Economic Theory, Springer, vol. 16(1), pages 77-105.
  3. 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.
  4. Martin F. Quaas & Stefan Baumgärtner, 2006. "Natural vs. financial insurance in the management of public-good ecosystems," Working Paper Series in Economics 34, University of Lüneburg, Institute of Economics.
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