The insurance value of biodiversity in the provision of ecosystem services
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In: Natural Resource Modeling, Vol. 20, No. 1, 03.2007, p. 87-127.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - The insurance value of biodiversity in the provision of ecosystem services
AU - Baumgärtner, Stefan
PY - 2007/3
Y1 - 2007/3
N2 - 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.
AB - 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.
KW - Sustainability sciences, Management & Economics
KW - biodiversity
KW - ecosystem functioning
KW - ecosystem services
KW - risk aversion
KW - insurance
KW - uncertainty
KW - Economics
KW - biodiversity
KW - ecosystem functioning
KW - ecosystem services
KW - risk aversion
KW - insurance
KW - uncertainty
UR - http://www.scopus.com/inward/record.url?scp=39449100219&partnerID=8YFLogxK
UR - https://www.mendeley.com/catalogue/d610009d-a73a-362c-a221-a0f11860a69b/
U2 - 10.1111/j.1939-7445.2007.tb00202.x
DO - 10.1111/j.1939-7445.2007.tb00202.x
M3 - Journal articles
VL - 20
SP - 87
EP - 127
JO - Natural Resource Modeling
JF - Natural Resource Modeling
SN - 0890-8575
IS - 1
ER -