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The Ecological Insurance Trap

Author

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  • Kevin Berry

    () (Institute of Social and Economic Reesarch, Department of Economics, University of Alaska Anchorage)

  • Eli P. Fenichel

    () (School of Forestry and Environmental Studies, Yale University)

  • Brian E Robinson

    () (Department of Geography, McGill University)

Abstract

Common pool resources often insure individual livelihoods against the collapse of private endeavors. When endeavors based on private and common pool resources are interconnected, investment in one may put the other at risk. We model Senegalese pastoralists who choose whether to grow crops, a private activity, or raise livestock on common pool pastureland. Livestock can increase the likelihood of locust outbreaks via ecological processes related to grassland degradation. Locust outbreaks damage crops, but not livestock, which are used for savings and insurance. We show the incentive to self-protect (reduce grazing pressure) or self-insure (increase livestock levels) changes with various property rights schemes and levels of ecological detail. If the common pool nature of insurance exacerbates the ecological externality even fully-informed individuals may make decisions that increase the probability of catastrophe, creating an “insurance trap.”

Suggested Citation

  • Kevin Berry & Eli P. Fenichel & Brian E Robinson, 2018. "The Ecological Insurance Trap," Working Papers 2018-04, University of Alaska Anchorage, Department of Economics.
  • Handle: RePEc:ala:wpaper:2018-04
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    Keywords

    Environmental externality; common pool resources; poverty trap; endogenous risk;

    JEL classification:

    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics

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