Agro-biodiversity As Natural Insurance And The Development Of Financial Insurance Markets

Agro-biodiversity can provide natural insurance to risk averse farmers. The authors employ a conceptual ecological-economic model to analyze the choice of agrobiodiversity by risk averse farmers who have access to financial insurance. They 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. They show that for the individual farmer natural insurance from agro-biodiversty and financial insurance are substitutes.