Managing increasing environmental risks through agro-biodiversity and agri-environmental policies

Stefan Baumgärtner and Martin Quaas

No 80, Working Paper Series in Economics from University of Lüneburg, Institute of Economics

Abstract: Abstract. Agro-biodiversity can provide natural insurance to risk-averse farmers by reducing the variance of crop yield, and to society at large by reducing the uncertainty in the provision of public-good ecosystem services such as e.g. CO2 storage. We analyze the choice of agro-biodiversity by risk-averse farmers who have access to financial insurance, and study the implications for agri-environmental policy design when on-farm agro-biodiversity generates a positive risk externality. While increasing environmental risk leads private farmers to increase their level of on-farm agro-biodiversity, the level of agro-biodiversity in the laissez-faire equilibrium remains inefficiently low. We show how either one of two agri-environmental policy instruments can cure this risk-related market failure: an ex-ante Pigouvian subsidy on on-farm agro-biodiversity and an ex-post compensation payment for the actual provision of public environmental benefits. In the absence of regulation, welfare may increase rather than decrease with increasing environmental risk, if the agroecosystems is characterized by a high natural insurance function, low costs and large external benefits of agro-biodiversity.

Keywords: agro-biodiversity; ecosystem services; agri-environmental policy; insurance; risk-aversion; uncertainty (search for similar items in EconPapers)
JEL-codes: D62 H23 Q1 Q57 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2008-03
New Economics Papers: this item is included in nep-agr, nep-env and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.leuphana.de/fileadmin/user_upload/Fors ... pdf/wp_80_Upload.pdf (application/pdf)

Related works:
Journal Article: Managing increasing environmental risks through agrobiodiversity and agrienvironmental policies (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lue:wpaper:80

Access Statistics for this paper

More papers in Working Paper Series in Economics from University of Lüneburg, Institute of Economics
Bibliographic data for series maintained by Joachim Wagner ( this e-mail address is bad, please contact ).