Template-Type: ReDIF-Paper 1.0

Author-Name: Kevin Berry
Author-Name-First: Kevin  
Author-Name-Last: Berry
Author-Email:  kberry13@alaska.edu
Author-Workplace-Name: Institute of Social and Economic Reesarch, Department of Economics, University of Alaska Anchorage

Author-Name: Eli P. Fenichel
Author-Name-First: Eli P.
Author-Name-Last: Fenichel
Author-Email:  eli.fenichel@yale.edu
Author-Workplace-Name: School of Forestry and Environmental Studies, Yale University

Author-Name: Brian E Robinson
Author-Name-First: Brian E  
Author-Name-Last: Robinson
Author-Email:  brian.e.robinson@mcgill.ca
Author-Workplace-Name: Department of Geography, McGill University

Title: The Ecological Insurance Trap

Abstract: Common pool resources often insure individual livelihoods against the collapse of private endeavors. 
When endeavors based on private and common pool resources are interconnected, investment in one may 
put the other at risk. We model Senegalese pastoralists who choose whether to grow crops, a private 
activity, or raise livestock on common pool pastureland. Livestock can increase the likelihood of 
locust outbreaks via ecological processes related to grassland degradation. Locust outbreaks damage 
crops, but not livestock, which are used for savings and insurance. We show the incentive to 
self-protect (reduce grazing pressure) or self-insure (increase livestock levels) changes with various 
property rights schemes and levels of ecological detail. If the common pool nature of insurance 
exacerbates the ecological externality even fully-informed individuals may make decisions that increase 
the probability of catastrophe, creating an “insurance trap.” 

Creation-date: 2018-08 
Number: 2018-04
Handle: RePEc:ala:wpaper:2018-04
File-URL: http://www.econpapers.uaa.alaska.edu/RePEC/ala/wpaper/ALA201804.pdf
File-Format: Application/pdf
Classification-JEL: Q20, Q54, Q57 
Keywords: Environmental externality, common pool resources, poverty trap, endogenous risk