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The economic insurance value of ecosystem resilience

Author

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  • Stefan Baumgärtner

    (Sustainability Economics Group, Department of Sustainability Sciences, Leuphana University of Lüneburg, Germany)

  • Sebastian Strunz

    (Sustainability Economics Group, Department of Sustainability Sciences, Leuphana University of Lüneburg, Germany)

Abstract

Ecosystem resilience, i.e. an ecosystem’s ability to maintain its basic functions and controls under disturbances, is often interpreted as insurance: by decreasing the probability of future drops in the provision of ecosystem services, resilience insures risk-averse ecosystem users against potential welfare losses. Using a general and stringent definition of “insurance” and a simple ecological-economic model, we derive the economic insurance value of ecosystem resilience and study how it depends on ecosystem properties, economic context, and the ecosystem user’s risk preferences. We show that (i) the insurance value of resilience is negative (positive) for low (high) levels of resilience, (ii) it increases with the level of resilience, and (iii) it is one additive component of the total economic value of resilience.

Suggested Citation

  • Stefan Baumgärtner & Sebastian Strunz, 2009. "The economic insurance value of ecosystem resilience," Working Paper Series in Economics 132, University of Lüneburg, Institute of Economics.
    • Handle: RePEc:lue:wpaper:132
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    References listed on IDEAS

    as
    1. Bruno Jullien & Georges Dionne & Bernard Caillaud, 2000. "Corporate insurance with optimal financial contracting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(1), pages 77-105.
    2. Karl-Göran Mäler, 2008. "Sustainable Development and Resilience in Ecosystems," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(1), pages 17-24, January.
    3. Charles Perrings & David Stern, 2000. "Modelling Loss of Resilience in Agroecosystems: Rangelands in Botswana," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 16(2), pages 185-210, June.
    4. Quaas, Martin F. & Baumgärtner, Stefan, 2008. "Natural vs. financial insurance in the management of public-good ecosystems," Ecological Economics, Elsevier, vol. 65(2), pages 397-406, April.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Baggio, Michele & Perrings, Charles, 2015. "Modeling adaptation in multi-state resource systems," Ecological Economics, Elsevier, vol. 116(C), pages 378-386.

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    More about this item

    Keywords

    ecosystem; economic value; insurance; resilience; risk; risk preferences;
    All these keywords.

    JEL classification:

    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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