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Agro-biodiversity as natural insurance and the development of financial insurance markets

Author

Listed:
  • Stefan Baumgärtner

    () (Centre for Sustainability, University of Lüneburg)

  • Martin F. Quaas

    () (Department of Ecological Modelling, UFZ-Centre for Environmental Research Leipzig-Halle)

Abstract

Agro-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.

Suggested Citation

  • Stefan Baumgärtner & Martin F. Quaas, 2007. "Agro-biodiversity as natural insurance and the development of financial insurance markets," Working Paper Series in Economics 61, University of Lüneburg, Institute of Economics.
  • Handle: RePEc:lue:wpaper:61
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Müller, Birgit & Quaas, Martin F. & Frank, Karin & Baumgärtner, Stefan, 2011. "Pitfalls and potential of institutional change: Rain-index insurance and the sustainability of rangeland management," Ecological Economics, Elsevier, vol. 70(11), pages 2137-2144, September.
    2. Mintewab Bezabih & Mare Sarr, 2012. "Risk Preferences and Environmental Uncertainty: Implications for Crop Diversification Decisions in Ethiopia," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, pages 483-505.
    3. Krishna, Vijesh V. & Zilberman, David & Qaim, Matin, 2009. "GM Technology Adoption, Production Risk and On-farm Varietal Diversity," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49173, Agricultural and Applied Economics Association.
    4. Di Falco, Salvatore & Bezabih, Mintewab & Yesuf, Mahmud, 2010. "Seeds for livelihood: Crop biodiversity and food production in Ethiopia," Ecological Economics, Elsevier, vol. 69(8), pages 1695-1702, June.
    5. Domptail, Stéphanie & Nuppenau, Ernst-August, 2010. "The role of uncertainty and expectations in modeling (range)land use strategies: An application of dynamic optimization modeling with recursion," Ecological Economics, Elsevier, vol. 69(12), pages 2475-2485, October.
    6. Jessica Ingenillem & Joachim Merz & Stefan Baumgärtner, 2014. "Determinants and interactions of sustainability and risk management of commercial cattle farmers in Namibia," Working Paper Series in Economics 304, University of Lüneburg, Institute of Economics.

    More about this item

    Keywords

    agro-biodiversity; ecosystem services; agro-ecosystem management; insurance; risk-aversion; uncertainty;

    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

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