The insurance value of forests in supplying climate regulation

Eugenio Figueroa () and Roberto Pasten C.

Working Papers from University of Chile, Department of Economics

Abstract: 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.

Pages: 21 pages
Date: 2012-12
New Economics Papers: this item is included in nep-agr, nep-env, nep-ias and nep-res
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Persistent link: https://EconPapers.repec.org/RePEc:udc:wpaper:wp372

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