Abstract
We address the interconnected issues of externalities in the use of a natural commonpool resource system and adverse effects of environmental uncertainty on risk-averse resource users. We set up a simple, analytical model, and derive conditions such that insurance by means of an income sharing mechanism mitigates externalities, and hence achieves a socially optimal outcome. For this to materialize, we show that the sharing rule must be sufficiently sensitive to individual contributions, and specifically show that a simple, proportional sharing rule can provide incentives for both, efficient contributions to the income pool and efficient use of the resource system.