Returns from hay cultivation in fertilized low diversity and non-fertilized high diversity grassland

Recent ecological experiments suggest that the interannual stability of ecosystem productivity may be determined by the diversity of organisms present in the system. We investigate whether such effects of biotic diversity on ecosystem stability may translate into economic values and possibly into an economic argument for the maintenance of biodiversity in managed habitats. Applying a stochastic model from financial economics to long-term harvest data from a grassland ecosystem we examine the potential ''insurance'' value of plant diversity on the stability of yields and economic returns in a drought-sensitive agricultural setting. Putative insurance premiums priced as put options on revenues from hay yield were higher for fertilized low-diversity grassland than for unfertilized species-rich glassland. From this perspective the annual ''insurance value'' (differential insurance premiums required to lock in specific rates of returns) of diverse plant communities may amount to $3.50 to $6.00 per acre. The results suggest that increased costs of risk in species-poor fertilized grassland may affect the optimum level of fertilization making lower fertilizer input and concomitantly higher plant community diversity more desirable.