The insurance value of forests in supplying climate regulation
AbstractThis brief paper proposes an analytical method for estimating the economic value of forest ecosystems in supplying climate regulation. If, as argued by several authors, forests ecosystems serve as hedging against climatic risk, then natural ecosystems may act as substitutes for market insurance. This ecosystem service of climate regulation can be economically valued by the marginal reduction in the willingness of risk-averse individuals to pay to avoid risk. We formally develop this novel methodology. As an illustration, we provide an estimate of the insurance value of climate regulation provided by forests using data on insurance premiums paid by local Chilean farmers. The insurance value of climate regulation is estimated to be approximately USD 0.0733 per hectare of forest. The framework that is proposed in this paper is useful and relevant for the cost-benefit analysis of natural resource conservation investments.
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Bibliographic InfoPaper provided by University of Chile, Department of Economics in its series Working Papers with number wp372.
Length: 21 pages
Date of creation: Dec 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-AGR-2013-01-07 (Agricultural Economics)
- NEP-ALL-2013-01-07 (All new papers)
- NEP-ENV-2013-01-07 (Environmental Economics)
- NEP-IAS-2013-01-07 (Insurance Economics)
- NEP-RES-2013-01-07 (Resource Economics)
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