Managing increasing environmental risks through agro-biodiversity and agri-environmental policies
Research output: Working paper › Working papers
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Lüneburg: Institut für Volkswirtschaftslehre der Universität Lüneburg, 2008. (Working paper series in economics; No. 80).
Research output: Working paper › Working papers
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TY - UNPB
T1 - Managing increasing environmental risks through agro-biodiversity and agri-environmental policies
AU - Baumgärtner, Stefan
AU - Quaas, Martin F.
N1 - Literaturverz. S. 20 - 23
PY - 2008
Y1 - 2008
N2 - Agro-biodiversity 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 such as e.g. CO2 storage. We analyze the choice of agro-biodiversity by risk-averse farmers who have access to financial insurance, and study the implications for agri-environmental policy design when on-farm agro-biodiversity generates a positive risk externality. While increasing environmental risk leads private farmers to increase their level of on-farm agro-biodiversity, the level of agro-biodiversity in the laissez-faire equilibrium remains inefficiently low. We show how either one of two agri-environmental policy instruments can cure this risk-related market failure: an ex-ante Pigouvian subsidyon on-farm agro-biodiversity and an ex-post compensation payment 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 agroecosystems is characterized by a high natural insurance function, low costs and large external benefits of agro-biodiversity.
AB - Agro-biodiversity 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 such as e.g. CO2 storage. We analyze the choice of agro-biodiversity by risk-averse farmers who have access to financial insurance, and study the implications for agri-environmental policy design when on-farm agro-biodiversity generates a positive risk externality. While increasing environmental risk leads private farmers to increase their level of on-farm agro-biodiversity, the level of agro-biodiversity in the laissez-faire equilibrium remains inefficiently low. We show how either one of two agri-environmental policy instruments can cure this risk-related market failure: an ex-ante Pigouvian subsidyon on-farm agro-biodiversity and an ex-post compensation payment 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 agroecosystems is characterized by a high natural insurance function, low costs and large external benefits of agro-biodiversity.
KW - Economics
KW - agro-biodiversity
KW - ecosystem services
KW - agri-environmental policy
KW - insurance
KW - risk-aversion
KW - uncertainty
KW - agro-biodiversity
KW - ecosystem services
KW - agri-environmental policy
KW - insurance
KW - risk-aversion
KW - uncertainty
KW - Sustainability sciences, Management & Economics
KW - agro-biodiversity
KW - ecosystem services
KW - agri-environmental policy
KW - insurance
KW - risk-aversion
KW - uncertainty
M3 - Working papers
T3 - Working paper series in economics
BT - Managing increasing environmental risks through agro-biodiversity and agri-environmental policies
PB - Institut für Volkswirtschaftslehre der Universität Lüneburg
CY - Lüneburg
ER -