Agro-biodiversity as natural insurance and the development of financial insurance markets
AbstractAgro-biodiversity can provide natural insurance to risk averse farmers. We employ a conceptual ecological-economic model to analyze the choice of agrobiodiversity by risk averse farmers who have access to financial insurance. We study the implications for individually and socially optimal agro-ecosystem managementand policy design when on-farm agro-biodiversity, through ecosystem processes at higher hierarchical levels, generates a positive externality on other farmers. We show that for the individual farmer natural insurance from agro-biodiversty and financial insurance are substitutes. While an improved access to financial insurance leads to lower agro-biodiversity, the e ects on the market failure problem (due to the external benefits of on-farm agro-biodiversity) and on welfare are determined by properties of the agro-ecosystem and agro-biodiversity’s external benefits. We derive a specific condition on agro-ecosystem functioning under which, if financial insurance becomes more accessible, welfare in the absence of regulation increases or decreases.
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Bibliographic InfoPaper provided by University of Lüneburg, Institute of Economics in its series Working Paper Series in Economics with number 61.
Length: 32 pages
Date of creation: 12 Sep 2007
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agro-biodiversity; ecosystem services; agro-ecosystem management; insurance; risk-aversion; uncertainty;
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-AGR-2007-09-16 (Agricultural Economics)
- NEP-ALL-2007-09-16 (All new papers)
- NEP-ENV-2007-09-16 (Environmental Economics)
- NEP-IAS-2007-09-16 (Insurance Economics)
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