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

  • In the face of uncertainty, ecosystems can provide natural insurance to risk averse users of ecosystem services. We employ a conceptual ecological-economic model to 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 free-rider 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.

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Author:Martin F. QuaasORCiD, Stefan BaumgärtnerORCiDGND
Series (Serial Number):University of Lüneburg Working paper series in economics (34)
Document Type:ResearchPaper
Year of Completion:2006
Date of Publication (online):2006/11/22
Release Date:2006/11/22
Tag:ecosystem management; ecosystem quality; endogenous environmental risk; insurance
GND Keyword:Ökosystem; Versicherung; Haftpflichtrisiko
Institutes:Fakultät Wirtschaftswissenschaften
Fakultät Wirtschaftswissenschaften / Institut für Volkswirtschaftslehre (IVWL)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht