The Insurance Value of Biodiversity in the Provision of Ecosystem Services

Natural Resource Modeling, Vol. 20, No. 1, pp. 87-127, 2007

36 Pages Posted: 21 Mar 2006 Last revised: 27 Apr 2009

See all articles by Stefan Baumgärtner

Stefan Baumgärtner

University of Freiburg - Department of Environment and Natural Resources

Date Written: September 1, 2005

Abstract

Biodiversity provides insurance against the uncertain provision of ecosystem services which are being used by risk-averse economic agents. I present a conceptual ecological-economic model that combines (i) current results from ecology about the relationships between biodiversity, ecosystem functioning, and the provision of ecosystem services with (ii) economic methods to study decision-making under uncertainty. In this framework I (1) determine the insurance value of biodiversity, (2) study the optimal allocation of funds in the trade-off between investing into biodiversity protection and the purchase of financial insurance, and (3) analyze the effect of different institutional regimes in the market for financial insurance on biodiversity protection. I conclude that biodiversity acts as a form of natural insurance for risk-averse ecosystem managers against the over- or under-provision with ecosystem services. Therefore, biodiversity has an insurance value, which is a value component in addition to the usual value arguments, such as direct or indirect use or non-use values. In this respect, biodiversity and financial insurance are substitutes. Hence, the availability, and exact institutional design, of financial insurance influence the level of biodiversity protection.

Keywords: biodiversity, ecosystem functioning, ecosystem services, insurance, risk aversion, uncertainty

JEL Classification: Q20, Q57, G22

Suggested Citation

Baumgärtner, Stefan, The Insurance Value of Biodiversity in the Provision of Ecosystem Services (September 1, 2005). Natural Resource Modeling, Vol. 20, No. 1, pp. 87-127, 2007. Available at SSRN: https://ssrn.com/abstract=892105

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

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