1. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Birgit Müller 1, Martin Quaas 2, Karin Frank 1, Stefan Baumgärtner 3 Pitfalls and potential of institutional change: Rain-index insurance and the sustainability of rangeland management 1 Helmholtz-Centre for Environmental Research UFZ – Dep. of Ecological Modelling 2 University of Kiel -Department of Economics 3 University of Lüneburg - Department of Economics, Dep. of Sustainability Sciences

2. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Outline 1.Background (Semi-) arid regions and risk 2.Ecological-economic model (based on rangeland farm in Namibia) 3.Results Role of local grazing strategy: resting in rainy years Impact of rain-index insurance on strategy choice 4.Conclusions of the toy model study 5.Outlook: Potential of (agent-based) social-ecological modelling for research on micro-insurance

3. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 small- holder agriculture Semi-arid regions and risk Ecology Economics low in average highly variable in space and time yields varies strongly from year to year insecure livelihoods Rainfall hazard of desertification high income risk

4. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Problem Does access to rain-index insurances influence the choice of the grazing management strategy of the farmer ? Hypothesis: Yes, since farmer can better overcome years of low rainfall. ?

5. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Case study: Gamis-Farm (Namibia) Karakul sheep farm, 180 mm/a precipitation many neighbouring farms gave up application of sophisticated strategy: rotational grazing resting for a third of the camps during the growth period of the vegetation only in years with sufficient precipitation

6. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 insurance company farmer climate precipitation insurance premium vegetation Concept of the ecological-economic toy model forage grazing strategy wool, lamb fur sheep insurance payment

7. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 photosynthesis climate green biomass reserve biomass current rainfall rain-/ grazing- history forage grazing sheep Ecological sub-model

8. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Decision criterion of the farmer Without insurance Expected intertemporal utility function I t = S t Income proportional to number of sheep (e.g. product for sale: fur of the lambs, milk, wool)

9. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Without insurance What is the effect of the grazing strategy “Resting in rainy years”? ?

10. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Strategy defined by: 1.Proportion of rested area α 2.Rain threshold, above which resting p gr Grazing strategy “Resting in rainy years” Space of possible grazing strategies fraction of resting α rain threshold p gr 0 20 40 60 80 100 0 80 160 240

11. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Role of resting in rainy years Income risk Income 2. Reduction of income risk  Acts as natural insurance Resting in rainy years has two functions: 1.Effective build-up of reserve biomass  Investment in future income (Müller et al. 2007 Agric.Syst.) (Quaas et al. 2007 Ecol.Econ.)

12. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Problem Does access to rain-index insurances influence the choice of the grazing strategy of the farmer? ?

13. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Sub-Model: Rain-index-insurance Rain-threshold p *, below which insurance pays out Revenues of insurance = Expected expenses of insurance Assumption: fair insurance e.g. if rainfall drops below 75% of long-term average if i - insurance payment b - insurance premium

14. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Impact of rain-index insurance on grazing strategy and sustainability fraction of resting α in % strike-level of the insurance in % of MAP without insurance with insurance 1. The higher the strike level … the less resting … the lower the sustainability in the long-term Müller et al. 2011, Ecological Economics Expected reserve biomass, T=70 Optimal fraction of resting with insurance 2. If strike level low enough: Un-intended side-effects avoided

15. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Conclusions of the toy model study Risk-reducing - “acts as an insurance” Role of Grazing-Strategy: Resting in rainy years: Impact of rain-index insurance on strategy choice: The introduction of a rain-index insurance could create non- intended effects (  rangeland degradation) Appropriate design of rain-index insurances Explicit consideration of social-ecol. feedbacks in need

16. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Outlook: Potential of (agent-based) social-ecological modelling for research on micro-insurance Example for participatory modelling: Role-playing simulation game as learning tool for farmers to understand functioning of index-insurance Patt, A. et al. 2010 Global Environmental Change Toy models: Modelling as tool of thinking, tool for experimentation and to enhance interdisciplinary communication Models at science-practise interface: Interlinkages of social and ecological processes Incorporation of more realistic human-decision of farmers at the micro-scale (including farmer interactions) Investigation of impacts of design of new risk management instruments under global change on livelihoods and sustainability

17. B. Müller, M. Quaas, K. Frank & S. Baumgärtner: Pitfalls and potential of institutional change Twente, April 2012 Thanks to Collaborative research centre on relationship of nomad and sedentary people: Funded by German Research Foundation (DFG) birgit.mueller@ufz.de