Returns from Hay Cultivation in Fertilized Low Diversity and Non-Fertilized High Diversity Grassland

Recent ecological experiments suggest that theinterannual stability of ecosystem productivitymay be determined by the diversity of organismspresent in the system. We investigate whethersuch effects of biotic diversity on ecosystemstability may translate into economic valuesand possibly into an economic argument for themaintenance of biodiversity in managedhabitats. Applying a stochastic model fromfinancial economics to long-term harvest datafrom a grassland ecosystem we examine thepotential insurance value of plant diversityon the stability of yields and economic returnsin a drought-sensitive agricultural setting.Putative insurance premiums priced as putoptions on revenues from hay yield were higherfor fertilized low-diversity grassland than forunfertilized species-rich glassland. From thisperspective the annual insurance value(differential insurance premiums required tolock in specific rates of returns) of diverseplant communities may amount to $3.50 to$6.00 per acre. The results suggest thatincreased costs of risk in species-poorfertilized grassland may affect the optimumlevel of fertilization making lower fertilizerinput and concomitantly higher plant communitydiversity more desirable.