Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/28179 
Year of Publication: 
2007
Series/Report no.: 
Working Paper Series in Economics No. 61
Publisher: 
Leuphana Universität Lüneburg, Institut für Volkswirtschaftslehre, Lüneburg
Abstract: 
Agro-biodiversity can provide natural insurance to risk averse farmers. We employ a conceptual ecological-economic model to analyze the choice of agrobiodiversity by risk averse farmers who have access to financial insurance. We study the implications for individually and socially optimal agro-ecosystem management and policy design when on-farm agro-biodiversity, through ecosystem processes at higher hierarchical levels, generates a positive externality on other farmers. We show that for the individual farmer natural insurance from agro-biodiversty and financial insurance are substitutes. While an improved access to financial insurance leads to lower agro-biodiversity, the effects on the market failure problem (due to the external benefits of on-farm agro-biodiversity) and on welfare are determined by properties of the agro-ecosystem and agro-biodiversity's external benefits. We derive a specific condition on agro-ecosystem functioning under which, if financial insurance becomes more accessible, welfare in the absence of regulation increases or decreases.
JEL: 
Q1
Q57
H23
D62
Document Type: 
Working Paper

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