Agro-Biodiversity as Natural Insurance and the Development of Financial Insurance Markets

AGROBIODIVERSITY, CONSERVATION AND ECONOMIC DEVELOPMENT, Routledge, A. Kontoleon, U. Pascual, M. Smale, eds., pp. 293-317, 2008

26 Pages Posted: 18 Sep 2007 Last revised: 29 Jun 2009

See all articles by Stefan Baumgärtner

Stefan Baumgärtner

University of Freiburg - Department of Environment and Natural Resources

Martin F. Quaas

German Centre for Integrative Biodiversity Research (iDiv) Halle-Jena-Leipzig

Date Written: September 1, 2008

Abstract

Agro-biodiversity can provide natural insurance to risk averse farmers. We employ a conceptual ecological-economic model to analyze the choice of agro-biodiversity by risk averse farmers who have access to financial insurance. We study the implications for individually and socially optimal agro-ecosystem management and 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. Whilean improved access to financial insurance leads to lower agro-biodiversity, the effects 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

JEL Classification: Q1, Q57, H23, D62

Suggested Citation

Baumgärtner, Stefan and Quaas, Martin F., Agro-Biodiversity as Natural Insurance and the Development of Financial Insurance Markets (September 1, 2008). AGROBIODIVERSITY, CONSERVATION AND ECONOMIC DEVELOPMENT, Routledge, A. Kontoleon, U. Pascual, M. Smale, eds., pp. 293-317, 2008, Available at SSRN: https://ssrn.com/abstract=1013549 or http://dx.doi.org/10.2139/ssrn.1013549

Stefan Baumgärtner (Contact Author)

University of Freiburg - Department of Environment and Natural Resources ( email )

Tennebacher Str. 4
Freiburg, 79106
Germany

HOME PAGE: http://www.ere.uni-freiburg.de

Martin F. Quaas

German Centre for Integrative Biodiversity Research (iDiv) Halle-Jena-Leipzig ( email )

Deutscher Platz 5e
Leipzig, 04103
Germany

HOME PAGE: http://www.idiv.de/bioecon

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