Managing increasing environmental risks through agrobiodiversity and agrienvironmental policies
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In: Agricultural Economics, Vol. 41, No. 5, 01.09.2010, p. 483-496.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - Managing increasing environmental risks through agrobiodiversity and agrienvironmental policies
AU - Quaas, Martin F.
AU - Baumgärtner, Stefan
PY - 2010/9/1
Y1 - 2010/9/1
N2 - Agrobiodiversity can provide natural insurance to risk-averse farmers by reducing the variance of crop yield, and to society at large by reducing the uncertainty in the provision of public-good ecosystem services, for example, CO 2 storage. We analyze the choice of agrobiodiversity by risk-averse farmers who have access to financial insurance, and study the implications for agrienvironmental policy design when on-farm agrobiodiversity generates a positive risk externality. While increasing environmental risk leads private farmers to increase their level of on-farm agrobiodiversity, the level of agrobiodiversity in the laissez-faire equilibrium remains inefficiently low. We show how either one of the two agrienvironmental policy instruments can cure this risk-related market failure: an ex ante Pigouvian subsidy on on-farm agrobiodiversity and an ex post payment-by-result for the actual provision of public environmental benefits. In the absence of regulation, welfare may increase rather than decrease with increasing environmental risk, if the agroecosystem is characterized by a high natural insurance function, low costs, and large external benefits of agrobiodiversity.
AB - Agrobiodiversity can provide natural insurance to risk-averse farmers by reducing the variance of crop yield, and to society at large by reducing the uncertainty in the provision of public-good ecosystem services, for example, CO 2 storage. We analyze the choice of agrobiodiversity by risk-averse farmers who have access to financial insurance, and study the implications for agrienvironmental policy design when on-farm agrobiodiversity generates a positive risk externality. While increasing environmental risk leads private farmers to increase their level of on-farm agrobiodiversity, the level of agrobiodiversity in the laissez-faire equilibrium remains inefficiently low. We show how either one of the two agrienvironmental policy instruments can cure this risk-related market failure: an ex ante Pigouvian subsidy on on-farm agrobiodiversity and an ex post payment-by-result for the actual provision of public environmental benefits. In the absence of regulation, welfare may increase rather than decrease with increasing environmental risk, if the agroecosystem is characterized by a high natural insurance function, low costs, and large external benefits of agrobiodiversity.
KW - Sustainability sciences, Management & Economics
KW - Agrobiodiversity
KW - Ecosystem services
KW - # # Agrienvironmental policy
KW - Insurance
KW - Risk-aversion
KW - Uncertainty
KW - Agrienvironmental policy
KW - Agrobiodiversity
KW - Ecosystem services
KW - Insurance
KW - Risk-aversion
KW - Uncertainty
KW - Economics
KW - Agrobiodiversity
KW - Ecosystem services
KW - # # Agrienvironmental policy
KW - Insurance
KW - Risk-aversion
KW - Uncertainty
UR - http://www.scopus.com/inward/record.url?scp=77955630834&partnerID=8YFLogxK
U2 - 10.1111/j.1574-0862.2010.00460.x
DO - 10.1111/j.1574-0862.2010.00460.x
M3 - Journal articles
VL - 41
SP - 483
EP - 496
JO - Agricultural Economics
JF - Agricultural Economics
SN - 0169-5150
IS - 5
ER -