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The Ecological Insurance Trap

Kevin Berry (), Eli P. Fenichel () and Brian E Robinson ()
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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

No 2018-04, Working Papers from University of Alaska Anchorage, Department of Economics

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.”

Keywords: Environmental externality; common pool resources; poverty trap; endogenous risk (search for similar items in EconPapers)
JEL-codes: Q20 Q54 Q57 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-env and nep-ias
Date: 2018-08
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