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

Stefan Baumgärtner and Martin Quaas

No 61, Working Paper Series in Economics from University of Lüneburg, Institute of Economics

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.

Keywords: agro-biodiversity; ecosystem services; agro-ecosystem management; insurance; risk-aversion; uncertainty (search for similar items in EconPapers)
JEL-codes: D62 H23 Q1 Q57 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007-09-12
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 (6)

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