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The insurance value of forests in supplying climate regulation


  • Eugenio Figueroa B.
  • Roberto Pasten C.


This 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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  • Eugenio Figueroa B. & Roberto Pasten C., 2012. "The insurance value of forests in supplying climate regulation," Working Papers wp372, University of Chile, Department of Economics.
  • Handle: RePEc:udc:wpaper:wp372

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    1. Loayza, Norman V. & OlaberrĂ­a, Eduardo & Rigolini, Jamele & Christiaensen, Luc, 2012. "Natural Disasters and Growth: Going Beyond the Averages," World Development, Elsevier, vol. 40(7), pages 1317-1336.
    2. Timo Goeschl & Timothy Swanson, 2003. "Pests, Plagues, and Patents," Journal of the European Economic Association, MIT Press, vol. 1(2-3), pages 561-575, 04/05.
    3. Robert J. Barro, 2009. "Rare Disasters, Asset Prices, and Welfare Costs," American Economic Review, American Economic Association, vol. 99(1), pages 243-264, March.
    4. Matthew E. Kahn, 2005. "The Death Toll from Natural Disasters: The Role of Income, Geography, and Institutions," The Review of Economics and Statistics, MIT Press, vol. 87(2), pages 271-284, May.
    5. Di Falco, Salvatore & Perrings, Charles, 2005. "Crop biodiversity, risk management and the implications of agricultural assistance," Ecological Economics, Elsevier, vol. 55(4), pages 459-466, December.
    6. Melinda Smale & Jason Hartell & Paul W. Heisey & Ben Senauer, 1998. "The Contribution of Genetic Resources and Diversity to Wheat Production in the Punjab of Pakistan," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(3), pages 482-493.
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