The individual farmer in a developing country has little incentive to care about the public good properties of on-farm biodiversity in the form of different crop varieties. There is a common assumption that, because of this, farmers will tend to maintain too little biodiversity on their farms. However, this does not fit well with the empirical data: because of poorly functioning insurance markets, farmers tend to maintain a wide range of different crop varieties in practice in order to hedge against weather shocks and other uncertainty. This paper develops a theoretical model to account for this, and show that farmers may in fact even maintain too much biodiversity on the individual farm, compared to the social optimum.
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