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Experimenting Environmental issues cut across the domains of natural resources, society,
further with the economy and technology, creating some of the most complex abstract systems
World3 model, this
paper attempts to of the present-day world, the management of which is a challenge. Although
formulate the generally ignored when the “Limits to growth” study (Meadows et al. 1972)
operational means was published, the environmental agenda has lately become an important part
to implement
the critical
of public policy. The Rio conference was a turning point in creating aware-
recommendations of ness of environmental issues and giving prominence to environmental policy,
the “Limits to which is now considered as important as development policy and has
Growth” study. With received high attention at all national, regional and global levels.
feedback as the
organizing principle The policies currently being proposed for abating environmental problems
and the work of often appear, however, to be quite superficial and sometimes even in vain.
Daly (1991),Page Many of these policies have called for powerful exogenous intervention at the
(1977)and Saeed
(1985)as guidelines, global level, although many doubts have been raised about the efficacy of
additional policy such an approach. Complex systems into which such interventions are made
space has been built may self-regulate themselves to neutralize any interventions that do not recog-
into the model to nize the internal tendencies arising from system structure. Also, the power
accommodate
controversial views institutions created to effect an intervention may move away from their original
on resource policy remits and work instead to maintain their own scope (Saeed 1990a; 1994).
and to self-regulate Although system dynamics modeling is often applied to identify policies
its critical policy
parameters. The that may change system behavior by influencing the day-by-day decisions of
policies so created the actors, in many cases this may not be attempted and only entry points for
not only appear to policy identified, especially when a modeling exercise aims mainly at raising
lie within the scope
of existing and issues rather than designing an operational means for intervention. A case in
potentially feasible point is the “Limits to Growth” study, which commissioned a system dynam-
regulatory ics model to extrapolate the future consequences of current economic growth
institutions, they
are also insensitive
policies, but without specifying an operational policy guideline. When the
to their respective entry points it suggested are literally translated into policy, they appear to call
behavioral for a powerful exogenous intervention to limit population, to abate pollution
parameters as well and to reduce drastically resource use, for which neither is an appropriate
as to the timing of
intervention. institutional structure currently in place nor can one be created without
Furthermore, these gravely contradicting existing systems of governance, which might lead to
policies strive to serious global conflict with disastrous consequences (Saeed 1996).
influence day-by-
day actions of the “Beyond the limits” (Meadows et al. 1992), a sequel to the “Limits to
actors in the system growth” study, was published by the authors of the original study in an
instead of imposing attempt to respond to some of the criticism of the original work. “Beyond the
the drastic schedule limits” makes explicit some of the implicit assumptions of the original model,
of changes in life-
style that is implicit but focuses mostly on reiterating the concerns of the original study. It also
in the literal
interpretation of An earlier version of this paper was presented at the 1995 International System Dynamics
the broad Conference held at Gakshuin University in Tokyo, Japan.
recommendations of System Dynamics Review Vol. 12,no. 4,(Winter 1996):281-304 Received August 1995
the “Limits” study. 0 1996 by John Wiley & Sons, Ltd. CCC 0883-7066/96/040281-24 Accepted May 1996
281
282 System Dynamics Review Volume 12 Number 4 Winter 1996
In addition, the attempts to expand further on the critical policy parameters of the original
implementation of model in an attempt to devise implementation mechanisms based on feed-
these policies
appears to be back. However, these mechanisms cannot be intimately linked with an opera-
possible through a tional framework as the revised model still does not incorporate adequate
national rather than policy space for this.
a global order.
We have attempted in this paper to reassess the policy premises adopted in
the original “Limits” study from the point of view of their implementation
Surya Raj Acharya
and to develop guidelines for operationalizing them. We decided to build on
has worked in the postulates of the original “Limits” model, Worlds, rather than on its
Nepal, at the sequel used in “Beyond the Limits,” since the two are similar in terms of their
Department of functional assumptions and the policy space they offer, while the former is
Housing and Urban
Development, and at simpler. We slightly revised World3, however, to accommodate the logic of
Bangkok, at the the policy space needed for our extended experimentation. The operational
Asian Institute of policies we have developed through experimentation with this model mobilize
Technology and the
UN Economic and fiscal instruments and service institutions that are currently existing or are
Social Commission potentially feasible. They seek to influence the motivations of the actors
for Asia and the concerned on day-by-day basis in order to achieve a sustainable future, rather
Pacific. h4r Acharya
holds a M.Eng. from
than call for the drastic changes in social behavior which appear to be implied
the Asian Institute by a literal interpretation of the policy recommendations of the “Limits” study
of Technology and is and its sequel.
currently pursuing a
Ph.D. at the
University of Tokyo.
The premises of an operational policy
Khalid Saeed is On the basis of the underlying decision theories, the approaches to policy
Professor of
Infrastructure
design can be placed in two broad categories, normative and descriptive.
Planning and Normative decision theory is concerned with how people should act in order
Management at the to achieve better results. It provides rules that will improve the consequences
Asian Institute of of actions. Policies formulated with an orientation of normative decision
Technology. He
holds a joint Ph.D. theory involve an imposition of prescriptions about social behavior decided
in System Dynamics exogenously, and often without taking into account the compatibility of such
and Economic prescriptions with existing circumstances. Because of the very nature of the
Development from
Massachusetts premises behind policies of this class, intervening through a power institution
Institute of is the most common strategy adopted for the implementation of normative
Technology and has policies. Descriptive decision theory, on the other hand, is concerned with
served as President
1995 of the System
how people actually go about handling a problem, irrespective of whether the
Dynamics Society. outcomes are admirable or not. This theory describes the patterns of behavior
Dr Saeed was that characterize action, so it provides a simple picture of how organizations
recipient of the 1995 work, which is the basis for improving organizational performance (Bauer
Jay Wright Forrester
Award. Address: 1968; Bower 1968).
School of Civil In either approach, the process of policy formulation involves several
Acharya and Saeed: An Attempt to Operationalize the ‘Limitsto Growth’ study 283
Engineering, Asian distinct steps, such as setting goals, formulating general policy directives and
Institute of guidelines, identifying appropriate policy leverages and, finally, selecting
Technology, P.O.
Box 4, Klongluang, policy instruments. Although the nature of the formulated policy may depend
Pathumthani, on its underlying decision-theory orientations, if it fails to define operational
Thailand. Email: instruments that affect the day-by-day decisions of the pertinent actors in the
saeedaait. ac .th
system, the implementation of the policy will necessarily require power inter-
vention. Indeed, policy design has traditionally incorporated an interventionist
perspective requiring centralization of the power to make decisions by an
outside autonomous hand. Unfortunately, such designs invariably fail. First, it
is not an easy task to achieve the required level of centralization. Second,
even when decision making can be centralized, the actors entrusted with
making the decisions may not sympathize with the objectives of the design.
Finally, centralization may conflict with a prevalent management ideology,
may be unacceptable to the members of organization in which the design is to
be implemented and may invoke much conflict that is destructive (Saeed
1992; 1994).
Saeed (1994) points out that, while it is possible to design operational
policies by employing the heuristical protocol of system dynamics, this is not
attempted in a large number of cases. An operational policy design should
aim at mobilizing the internal forces of the system into creating functional
patterns and avoiding dysfunction. Such a design can bring about evolution-
ary change in the system by influencing the motivations of the actors that
guide their day-by-day decisions. However, if this design is conceived in
terms of changing a few sensitive parameters of a system dynamics model that
represents social rather than individual behavioral characteristics, its imple-
mentation may still require a powerful intervention by the leadership, who
may often have neither the motivation nor the means to commit to such an
intervention, especially when the context is public interest rather than profit.
Policy design for the public agenda must, therefore, be conceived in terms of
either new feedback loops that are created to modify the anatomy of critical
decisions of the actors concerned or the way the influence structure of
the existing feedback loops is changed so that the dominance of insidious
mechanisms is minimized and the role of benign mechanisms enhanced.
Saeed (1992) also suggests that a model intended for exploring policy options
for system change must subsume multiple modes that are separated by time
and geography, since only then will its underlying structure contain the
mechanisms of modal change. This means that differing theoretical perspec-
tives, often within local empirical basis, should be considered as a part of the
modal variety subsumed in a model addressing controversial issues.
The policy prescriptions of the World3 model commissioned by the
“Limits” study are based on sensitive parameters representing social rather
284 System Dynamics Review Volume 1 2 Number 4 Winter 1996
The nature of the policy prescription of the World3 model arises from the
way the resource sectors (i.e. natural resources and arable land) have been
Acharya and Saeed: An Attempt to Operationalize the ‘Limitsto Growth’study 285
modeled. The stocks of these resources have only outflows which make the
ultimate collapse inevitable since these outflows continue as long as there is
any production, which is driven by resources. The model does not consider
any possibility of long-term sustenance through regeneration, which is a
widely recognized natural phenomenon, fueled by the earth’s ecosystem
constantly receiving energy inputs from the sun. One could, of course, say
that the fixed stocks take into account the ultimate available resources,
including the energy received from the sun, but the time frame of such stocks
would be very different from the one considered in the “Limits” study. This
characteristic of the model has ruled out consideration of policy options
capitalizing on increasing the efficacy of the regeneration process and thus
sustaining available stocks in spite of consumption. Figure 1 shows how the
resource ecosystem works in reality, drawing energy inputs from the sun. The
total mass of resources in the system represented by the large rectangle may
remain constant, but the proportion of usable resources within this stock will
depend on the speed of circulation within the resource system, which
depends on technological and management practices, rather than being given
for all time (Abelson and Hammond 1976;Brooks and Andrews 1974).
For this reason, we have revised the base structure of the natural resource
and agriculture sectors of World3. Care has been taken, however, to modify
the original model minimally so that its original identity is retained. Further-
more, additional information structure is created around the sensitive parame-
ters of the model to operationalize its key policy recommendations. The
revised model also includes variables for the proposed policies with switches
which can be activated at any point in time. This was done so as to be able
to experiment with the timing of the proposed policies-to determine their
sensitivity to their time of implementation, since the policies of the “Limits”
usable
286 System Dynamics Review Volume 1 2 Number 4 Winter 1996
increasing the proportion available for use. However, at present the priority
set for technological development seems not to be cognizant of this fact. For
instance, currently, only six per cent of public research funds for energy are
allocated to renewable resources (with a short regeneration time constant)
while 60 per cent goes to nuclear energy and 15 per cent to fossil fuel (with a
long regeneration time constant) (World Bank 1992).
In view of the above considerations, a resource regeneration structure is
incorporated into the model, in which the regeneration time depends on the
composition of the resource basket in use, this in turn being determined by
the technological choices made as suggested by Saeed (1985; 199Ob). These
technological choices can be inff uenced through indirect policy levers. The
policy levers affecting the resource basket built into the model are based on
the principles of neoclassical economic theory and the physics of the resource
ecosystem. Neoclassical economic theory advocates using natural resources to
maximize the present utility determined by market situation, discount rates
and the technology in use. However, neoclassical economic theory focuses
largely on micro issues and lacks a macro dimension (Daly 1991). In an effort
to extend the economic logic driving resource use from micro to macro
dimension, Page (1977) suggested that we can think of resource policy at three
levels: reactive - responding to immediate pressures, corrective - attempting
to improve the working of the markets, and reflective - informed indirect
interventions attempting to preserve resources.
Most resource policies currently in use fall into the reactive category. These
policies respond to particular pressures and a collection of them may often
lack internal consistency. Implementation of reactive policies often requires
powerful exogenous intervention. These are not considered in our experimen-
tation.
Corrective policies aimed at improving the market mechanisms attempt to
ensure efficient use of resources. As the market becomes a better allocator of
resources to various uses, a sustainable balance is expected to be reached.
This is also the approach advocated by the resource economics stream of
neoclassical economics, although there is valid skepticism about the ability of
the market to arrest the increasing trend of erosion of natural resources. Since
the original “Limits” premises lend themselves easily to exploring operational
corrective policies, instruments subsuming this level of intervention are
experimented with in our study.
Market mechanisms are, however, good only for assuring intra-temporal
efficiency of resource use and they cannot address the issue of inter-temporal
equity (Page 1977; Pearce et al. 1990). Because, according to the theory of
market economy, reserving resources for future use makes sense only when
the expected future price of the resources is increasing at a rate that is at least
288 System Dynamics Review Volume 12 Number 4 Winter 1996
equal to the market rate of interest. However, the market rate of interest gener-
ally exceeds the rate at which the society wishes to discount the future.
Hence, market mechanisms always favor present use of resources over future
use, which does not serve the social interest in terms of inter-temporal equity
(Solow 1974). Also, this approach cannot ensure the maintenance of an
adequate level of slack in the resource stocks thereby making the society more
vulnerable to shocks, nor can it assure sustenance in the future without heroic
assumptions about technological progress.
To address the problem of inter-temporal (or inter-generation) distribution
of natural resources, Page (1977)suggested moving to the reflective level of
policy interventions, which basically favors informed government interven-
tions to keep the resource base intact. Realizing the fact that even well func-
tioning competitive markets may fail to allocate resources properly over time,
Solow (1974)also favored public intervention to slow down and stretch out
the exploitation of the resource pool. This level of intervention is further
explored in our study.
Figure 2 shows the additional information structure added to World3 in
our revision of the resource sector. At the outset, a provision for resource
regeneration is introduced in the model. Implicit sources of regeneration are
the geological processes, recycling, and substitution from the pool of backstop
resources, which, contrary to their definition, are not assumed to be unlim-
ited. The revised structure incorporates active as well as latent feedbacks.
First, it has been assumed that market imperfections are removed to enable
market signals to create appropriate feedbacks. The market clearing mecha-
nism has, however, not been explicitly modeled as the level of aggregation of
World3 does not allow this. Instead, the price adjustment is assumed to be
responsive to resource availability. The price level thus transmits appropriate
signals to the technological progress related to substitution, recycling and use
of natural resources. The market mechanism assumed here forms part of our
revised base model.
The price system discussed above can at best only ensure intra-temporal
efficiency of resource allocation. So, to ensure inter-temporal equity, indirect
intervention through the provision of a severance taxation system is proposed.
Such a severance tax structure must assure that consumption and regenera-
tion rates are matched through an appropriate selection of the resource
basket. This requires continuous monitoring of resource use rates and
resource stocks to determine coverage time for each stock, which is translated
into its availability. The severance tax is then continuously adjusted in
response to resource availability, ensuring in the long run that there are no
inter-generation transfers of cost.
The severance tax simultaneously influences the recycling rate, the substi-
Acharya and Saeed: An Attempt to Operationalize the ‘Limits to Growth’ study 289
NatResUseFr
a NatF
tution rate (from the stocks of the backstop resources), the efficiency of
use, the indicated level of industrial production and the regeneration time
constant (determined by the composition of the resource basket in use). The
technological dimension is implicitly included in each of these influences.
Hence, one of the premises of the revised structure is that technology can
be influenced endogenously through a severance tax. As all newly created
290 System Dynamics Review Volume 12 Number 4 Winter 1996
a/
ErodedLandRegnTime ( 0 ’
19b\,
ErodedlandFraction
ArableLand
SW-AgriPolicy
LandErosionRate
AveLifeLand
proposed pollution
reduction and
population planning
policies
industrial output per capita service output per capita
pollution reduction
natural resources
fraction remaining I persistent pollution
t'
4
Simulation run with severance tax and its influence on technological progress
Figure 7 shows the behavior when the model is simulated with the additional
policies of clamping severance tax on the scarce resources and making tech-
nological progress responsive to resource scarcity as suggested by Saeed
(1985). The model structure corresponding to the severance tax and techno-
logical policy are activated in the year 1975. The severance tax policy pushes
the resources price higher than that determined by the market which simulta-
neously stimulates substitution, recycling and efficiency of use technology.
These policies do not alleviate, however, the problem of collapse, since when
Fig. 6. Base
simulation run of
-- IndusOutputPC [0.00..1,000.00]
-4- NatResFracRemaing [0.OO ..2.50]
-5-PerPdl-lndex [0.00..40.00]
0.
1900 1950 2000 2050 2100
TIME
Acharya and Saeed: An Attempt to Operationalize the 'Limits to Growth' study 295
Fig. 7. Simulation
with severance tax
and technology
policy seeking to
adjust regeneration
time of the aggregate -l- Population [O.OO.. 1e 101
resource basket in -TFood [0.00..8e12]
use
-3-lndusOutputPC [0.00..1,OOO.OO]
-4- NatResFracRernaing [0.00..2.50]
-5-PerPoll-lndex [0.00..40.00]
Fig. 8. Simulation
with industrial
stabilization,
''7
population planning
and pollution
reduction policies -1- Population [O.OO..lelO]
0.
added to the policies TFood [0.00..8e12]
of Figure 7
-3-IndusOufputPC [0.00..1,OOO.OO]
-4- NatResFracRernaing [0.00..2.50]
0.2- 4- 4 -5- PerPoll-Index [0.00..40.00]
0.0, , I I I t
1900 2000 2100 2200 2300 2400
TIME
296 System Dynamics Review Volume 12 Number 4 Winter 1996
2400. In this run, the problem of excessive pollution seems to have been
alleviated by the pollution reduction policy, which was achieved by activating
the information link between persistent pollution index and required level of
pollution abatement technology. The industrial-output stabilization policy
attempts to maintain an indicated level of industrial output by influencing
society’s decision on investment in social services. The desired level of indus-
trial output is continuously adjusted in response to the level of persistent
pollution and the stock of natural resources through indirect interventions,
such as taxation. If the level of industrial output is higher than desired, more
investment is diverted to the social sector and vice-versa. This influences
investment trends in the industrial sector and eventually stabilizes the indus-
trial output at around the desired level. This simulation also incorporates the
impacts of the level of industrial output and social services on population,
which reside in the links created in the revised model from industrial output
per capita and service output per capita to desired family size. The model
behavior is significantly improved with the introduction of these policies, at
least in the short run. However, if the behavior is carefully scrutinized, it
can be seen that the system is not perfectly stabilized. In particular, food pro-
duction is heading towards continuous decline, which could cause a collapse
in the long run.
Conclusion
References
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Brooks, D. B., and P. W. Andrews, 1974. Mineral Resources, Economic Growth,
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304 System Dynamics Review Volume 12 Number 4 Winter 1996