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Insurance value of natural capital

Author

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  • Quaas, Martin
  • Baumgärtner, Stefan
  • De Lara, Michel

Abstract

Nature-based solutions to insurance are in high demand. We explore the idea that natural capital has an insurance value insofar as it can mitigate the effects of uncertainty on human well-being. We present a formal model that substantiates this claim. We propose a definition for the insurance value of natural capital for a stochastic and dynamic ecosystem that provides ecosystem services for a risk-averse user. The insurance value of natural capital depends on the properties of ecosystem dynamics as well as on the risk and time preferences of the ecosystem user. It can be positive or negative. We relate the natural insurance value to conservative use of the ecosystem and precautionary investment in the natural capital stock. For the case of logarithmic per-period utility we find that optimal management becomes more conservative with increasing uncertainty if and only if the insurance value of natural capital is positive. We qualify this finding for more general forms of the per-period utility function.

Suggested Citation

  • Quaas, Martin & Baumgärtner, Stefan & De Lara, Michel, 2019. "Insurance value of natural capital," Ecological Economics, Elsevier, vol. 165(C), pages 1-1.
    • Handle: RePEc:eee:ecolec:v:165:y:2019:i:c:7
    DOI: 10.1016/j.ecolecon.2019.106388
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    Cited by:

    1. Hahn, Thomas & Sioen, Giles B. & Gasparatos, Alexandros & Elmqvist, Thomas & Brondizio, Eduardo & Gómez-Baggethun, Erik & Folke, Carl & Setiawati, Martiwi Diah & Atmaja, Tri & Arini, Enggar Yustisi & , 2023. "Insurance value of biodiversity in the Anthropocene is the full resilience value," Ecological Economics, Elsevier, vol. 208(C).
    2. Villamayor-Tomas, Sergio & Sagebiel, Julian & Rommel, Jens & Olschewski, Roland, 2021. "Types of collective action problems and farmers’ willingness to accept agri-environmental schemes in Switzerland," Ecosystem Services, Elsevier, vol. 50(C).
    3. Augeraud-Véron, Emmanuelle & Fabbri, Giorgio & Schubert, Katheline, 2021. "Volatility-reducing biodiversity conservation under strategic interactions," Ecological Economics, Elsevier, vol. 190(C).
    4. Can Askan Mavi & Nicolas Quérou, 2020. "Common pool resource management and risk perceptions," DEM Discussion Paper Series 20-25, Department of Economics at the University of Luxembourg.
    5. Friedrich Scherzinger & Martin Schädler & Thomas Reitz & Rui Yin & Harald Auge & Ines Merbach & Christiane Roscher & W Stanley Harpole & Evgenia Blagodatskaya & Julia Siebert & Marcel Ciobanu & Fabian, 2024. "Sustainable land management enhances ecological and economic multifunctionality under ambient and future climate," Nature Communications, Nature, vol. 15(1), pages 1-17, December.
    6. Can Askan Mavi & Nicolas Quérou, 2020. "Common pool resource management and risk perceptions," CEE-M Working Papers hal-03052114, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    7. Carvalho Ribeiro, Sónia & Soares Filho, Britaldo & Cesalpino, Tiago & Araújo, Alessandra & Teixeira, Marina & Cardoso, Jussara & Figueiras, Danilo & Nunes, Felipe & Rajão, Raoni, 2024. "Bioeconomic markets based on the use of native species (NS) in Brazil," Ecological Economics, Elsevier, vol. 218(C).
    8. Kelsall, Claudia & Quaas, Martin F. & Quérou, Nicolas, 2023. "Risk aversion in renewable resource harvesting," Journal of Environmental Economics and Management, Elsevier, vol. 121(C).
    9. Buonocore, Elvira & Appolloni, Luca & Russo, Giovanni F. & Franzese, Pier Paolo, 2020. "Assessing natural capital value in marine ecosystems through an environmental accounting model: A case study in Southern Italy," Ecological Modelling, Elsevier, vol. 419(C).
    10. Unterberger, Christian & Olschewski, Roland, 2021. "Determining the insurance value of ecosystems: A discrete choice study on natural hazard protection by forests," Ecological Economics, Elsevier, vol. 180(C).
    11. Thomas Knoke & Carola Paul & Elizabeth Gosling & Isabelle Jarisch & Johannes Mohr & Rupert Seidl, 2023. "Assessing the Economic Resilience of Different Management Systems to Severe Forest Disturbance," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 84(2), pages 343-381, February.

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