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. The authors 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. They 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.