TY - JOUR

T1 - Natural vs. financial insurance in the management of public-good ecosystems

AU - Quaas, Martin F.

AU - Baumgärtner, Stefan

PY - 2008/4/1

Y1 - 2008/4/1

N2 - In the face of uncertainty, ecosystems can provide natural insurance to risk averse users of ecosystem services. We employ a conceptual ecological-economic model in which ecosystem management has a private insurance value and, through ecosystem processes at higher hierarchical levels, generates a positive externality on other ecosystem users. We analyze the allocation of (endogenous) risk and ecosystem quality by risk averse ecosystem managers who have access to financial insurance, and study the implications for individually and socially optimal ecosystem management, and policy design. We show that while an improved access to financial insurance leads to lower ecosystem quality, the effect on the extent of the public-good problem and on welfare is determined by ecosystem properties. We derive conditions on ecosystem functioning under which, if financial insurance becomes more accessible, (i) the extent of optimal regulation increases or decreases; and (ii) welfare, in the absence of environmental regulation, increases or decreases.

AB - In the face of uncertainty, ecosystems can provide natural insurance to risk averse users of ecosystem services. We employ a conceptual ecological-economic model in which ecosystem management has a private insurance value and, through ecosystem processes at higher hierarchical levels, generates a positive externality on other ecosystem users. We analyze the allocation of (endogenous) risk and ecosystem quality by risk averse ecosystem managers who have access to financial insurance, and study the implications for individually and socially optimal ecosystem management, and policy design. We show that while an improved access to financial insurance leads to lower ecosystem quality, the effect on the extent of the public-good problem and on welfare is determined by ecosystem properties. We derive conditions on ecosystem functioning under which, if financial insurance becomes more accessible, (i) the extent of optimal regulation increases or decreases; and (ii) welfare, in the absence of environmental regulation, increases or decreases.

KW - Sustainability sciences, Management & Economics

KW - Ecosystem services

KW - Ecosystem management

KW - Endogenous environmental risk

KW - Insurance

KW - Multi-scale ecosystem functioning

KW - Risk aversion

KW - uncertainty

KW - Economics

KW - Ecosystem services

KW - Ecosystem management

KW - Endogenous environmental risk

KW - Insurance

KW - Multi-scale ecosystem functioning

KW - Risk aversion

KW - uncertainty

UR - http://www.scopus.com/inward/record.url?scp=39449116669&partnerID=8YFLogxK

U2 - 10.1016/j.ecolecon.2007.07.004

DO - 10.1016/j.ecolecon.2007.07.004

M3 - Journal articles

VL - 65

SP - 397

EP - 406

JO - Ecological Economics

JF - Ecological Economics

SN - 0921-8009

IS - 2

ER -