Ecological Vulnerability Through Insurance? Potential Unintended Consequences of Livestock Drought Insurance

Abstract

Increasingly frequent and severe droughts pose one of the greatest challenges for dryland pastoralists in the Horn of Africa. Livestock drought insurance (LDI) has been proposed as a means to manage these risks. However, LDI may have unintended side effects, such as inducing unsustainable herd sizes leading to long-term pasture degradation. These issues are infeasible to study empirically given that none of the emerging LDI programs has existed at scale for any extended period of time. Thus, we study the potential long-term effects of LDI on pasture conditions at scale with the help of an agent-based model. We particularly consider the possibility that if insurance is taken up at scale, the quick herd size recovery that insurance enables after droughts can disrupt natural pasture recovery dynamics, with the potential to degrade the long-run carrying capacity of the vegetation. Our results show that, especially if pastures are very sensitive to grazing, insurance can indeed cause and/or intensify ecological instability. Furthermore, unfortunately, these unintended ecological consequences are most likely where insurance is needed the most. Designing the insurance product in the light of these insights may dampen these effects.