Chair of Environment and Economics

Research

Topics

  • Climate-economic Models: Understand how economic agents think and decide about climate change and climate protection
  • Nudging: (How) can we make use of (irrational) decision heuristics to foster the energy transition?
  • Behavioural aspects of environmental problems: Use of evolutionary approaches to investigate how people react to environmental policy.
  • Resource scarcity
  • Sustainable Development


Methods

  • Evolutionary economics
  • Behavioural economics
  • Ecological economics
  • Complexity Theory
  • Multi-agent modelling
  • Genetic algorithms


 Current research projects

  • Including structural change in climate-economic modelling

    A multi-agent model to include structural change and empirically founded behavioural assumptions in climate-economic modelling
    Sylvie Geisendorf / Olivier Delbard (ESCP Europe Paris)/Christian Klippert (ESCP Europe Berlin)

           » ESCP research funding
  • Advancing sustainable development by environmental policy

    An assessment of policy effects using an ecological-economic multi-agent model

    Sylvie Geisendorf / Christian Klippert (ESCP Europe Berlin)

           » Subproject within the Research Center
              on Sustainability with 16 ESCP Europe members on 3 campuses:
              SUST BUSY: Business and Society - Towards a Sustainable
              World

              How can sustainability be implemented on different levels of society
              (company, consumers, financial market, policy, national economy)
              and how are these levels connected and need to interact?
              Scientific Director: Prof. Dr. Sylvie Geisendorf, ESCP Europe Berlin


Applications for research projects und further work

  • Behavioural Climate Policy - Wie begrenzte Rationalität, richtig verstanden, die Energiewende voranbringen kann. Die Idee des Nudging.

                   »   Mit Dr. Carlotta von Bock und Polach (ESCP Europe) und
                        Dr. Christian Groß (MPI Jena)

  • E-SuPort: Energy Sustainability in ports
    Development of a methodology for the evaluation of the environmental profile of ports. Assessment of selected Greek and German ports and establishment of emission inventories. Comparison of the situation in Greece and Germany and proposition of a more sustainable smart-energy-management.


          »   Application for a German-Greek bilateral R&D
               cooperation 2013-2015, funded by the German Federal Ministry
               for Education and Research (BMBF) and the General Secretariat
               for Research and Technology (GSRT) of the Ministry of Education
               and Religious Affairs, Culture and Sports of the Hellenic Republic.
               Prof. PhD Spiros Papaefthimiou (Technical University of Crete)/
               Kostas Andriosopoulos (ESCP Europe London) /
               Sylvie Geisendorf
  • Behavioural aspects of environmental and resource economics
    Literature review of recent theoretical and empirical papers on how individual or group behaviour influences resource exploitation or pollution issues

                  »  Maximilian von Bose

  • The impact of stustainability on stock performance - Does sustainability create shareholder value?

                  »  Daniela Nuscheler

  • Kosten und Nutzen der Energiewende in Deutschland - Eine Gesamtbilanz unter Berücksichtigung externer Effekte

                 »   Sebastian Ackermann

  • Energiestrategie 2050 der Schweiz: Auswirkungen auf die Produktionskosten der Maschinenbau-Unternehmen

            »  Patrick Bucheli
  • The Desertec Project: A Feasibility Study

            »  Alexis-Peter Freiherr von Cramm

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Including structural change in climate-economic modelling

A multi-agent model to include structural change and empirically founded behavioural assumptions in climate-economic modelling


Project Leader: Sylvie Geisendorf (ESCP Berlin), Olivier Delbard (ESCP Paris)

Research Team Members: Christian Klippert (ESCP Berlin)


Research Deficit

Climate-economic modelling à la Nordhaus (1994, 2008) or Stern (2007) uses macro-economic general equilibrium models to weigh costs of climate protection against costs of climate change. In essence, these models are standard neoclassical optimization models, resulting in a cost-minimizing climate policy; typically in a mix of some climate change with some protection measures.
There are two problems with such an approach. First, it seems quite obvious that people in the real world do not behave as optimization models assume. Second, such models assume a rather static economy and do not allow for a change of the economic structure. However, investments in climate protection are not just costs but also investments in future economic sectors with promising growth rates and the potential to incite further growth in adjoining sectors. A world economic model reaching decades into the future should include such potential. 

Relevance

Climate change is a pressing issue with still unsolved questions. Macro-economic models should be able to contribute to the needed answers but the most quoted models neglect behavioural aspects and economic dynamics.

Objective

A world economic model reaching decades into the future should include the potential for structural change of the economy and realistic behavioural assumptions. We will try to include both.

Methodology 

Concerning the behavioural aspects, the paper recurs to a multi-agent model originally developed by Janssen (1996)/Janssen de Vries (1998) and updated with current data by Sylvie Geisendorf (2009), one of the applying project leaders. Similar to Nordhaus’ climate-economy model, the “battle of perspectives” model is also based on macroeconomic equations. But Janssen implemented adaptive agents, holding different perspectives on the dynamics of climate change and necessary abatement measures. On the basis of cultural theory (Douglas/Wildawski 1982) Janssen defined three types of agents, ranging from a believer in free markets, over a scientifically informed agent, to a risk-averse environmentalist. All three types govern the world’s economy by controlling investments and the transition from fossil fuels (variables that are not controlled deliberately in the standard climate-economic models). If temperature and economic output differ from their expectations, they adjust their measures. In some scenarios they rule the world conjointly and are able to learn from each other. This modified model allows investigating the consequences of different behavioural assumptions on climate policy and economic output.
In the proposed research project, the updated model shall undergo two further amendments.
First, it shall be enabled to show how an economy can undergo structural change from within. Referring to a report by Jaeger et al. (2011) it shall be implemented how investments in climate protection can trigger growth in a particular sector of the economy – the “Green Economy” – which might, so say the authors, offer a new growth path. This part of the project will be worked on in Berlin by Sylvie Geisendorf and Christian Klippert.
Second, the stylised types of agents shall be underlain with more realistic behavioural descriptions. Olivier Delbard in Paris will work on an empirical foundation of the thus far theoretically designed types of agents. The agents´ behavioural descriptions shall be filled with more content and the percentages of different types of agents shall be based on empirical findings (e.g. how many people in a given country do think that climate protection is an issue we need to spend money on? Does that differ even among European countries?)
The qualitative part of the research (conducted by Olivier) will start from the three main types of agents described by Janssen to develop a more refined typology, including sub-types and stakeholder-based perspectives (businesses, NGOs, politicians, etc.). This will be developed through analyses of reports, surveys and targeted face-to-face interviews of experts and various stakeholders. This empirical work is backed up by stakeholder theory, neo institutional theory as well as research on culture and environmental responsibility. Habermas’ discussion ethic shall also be referred to.
A multi-country study (within Europe) shall also be conducted to add other variables based on cultural differences within Europe.


Theoretical/methodological/empirical expected contributions

The revised “battle of perspectives” model shall be used to analyse how the more realistic perspectives of the agents affect the chances of growth and climate protection. Jaeger et al. (2011) conclude that a more ambitious CO2 reduction goal of 30% instead of 20% until 2020 could enhance European investments and increase GDP by up to 6%. Now the “battle of perspectives” model shall be used to explore under what kind of behavioural assumptions that might be possible – and what happens for agents not believing in such a change.


References

Douglas, M., Wildawski, A. 1982, Risk and Culture: An Essay on the Selection of Technological and Environmental Dangers. Berkeley, University of California Press

Geisendorf, S., 2009, Do we believe in climate change? A multi-agent climate-economic model. Papers on agent-based economics, No. 8, Section environmental and innovation economics, University of Kassel

Jaeger, C., Paroussos, L., Mangalagiu, D., Kupers, R., Mandel, A. and Tàbara J.D.; 2011, A new growth path for Europe: Generating Prosperity and Jobs in the Low-Carbon Economy. Synthesis Report, German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety

Janssen, M.A., 1996, Meeting Targets: Tools to Support Integrated Assessment Modelling of Global Change. PhD Thesis ISBN 90-9009908-5, University of Maastricht, the Netherlands.

Janssen, M. B. de Vries, 1998, The battle of perspectives: a multi-agent model with adaptive responses to climate change. Ecological Economics, 26: 43-65
Nordhaus, W.D., 1994, Managing the Global Commons: The Economics of Climate Change. Cambridge, MA: MIT Press

Nordhaus, W.D., 2008, A Question of Balance Weighing the Options on Global Warming Policies, Yale University Press New Haven & London

Stern, N., 2007, The Economics of Climate Change: The Stern Review. Cambridge, Cambridge University Press.

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Advancing sustainable development by environmental policy – an assessment of policy effects using an ecological-economic multi-agent model

 

Sylvie Geisendorf / Christian Klippert

Since the definition of sustainable development by the final report of the Brundtland Commission Our Common Future in 1987 there is an on-going debate about the right way to realize the claim for “inter- and intragenerational fairness” (WCED 1987: 43). There have been many attempts to operationalize this rather elusive goal but without doubt the preservation of the ecological system plays a major role (Daly 1996).
From a political point of view there is a whole bundle of environmental policy instruments, reaching from regulations and international agreements over taxes or transferable permits to subsidies, which might help guide the economy to a more sustainable path. However, many of the actual attempts, like the European CO2 trading scheme, do not achieve the predicted and desired results.
One obvious reason may be the deviations of actual implementations from the theoretical proposition  but not all fallacies can be explained thereby. A thus far neglected problem may be the reliance on theoretical predictions of the instrument´s effects which are just not correct. This inadequacy of prediction results primarily from the underestimated complexity of the ecological and the economic system as well as the connection between the two (Costanza 1991; Beckenbach 2001).
The underestimation of complexity becomes obvious if one considers environmental and resource economic analyses based on the neoclassical school of thought. Although mathematically sophisticated, these models make very simplistic assumptions about the ecological system and very ambitious ones about the capabilities of the economic one, or its agents. Both lead to an underestimation of the respective system´s intricacy and dynamics. The ecological system is often represented by single species equations, as in resource economics, or not at all, as in environmental economics where damages to the natural system are just depicted as costs to the economic one (Tietenberg/Lewis 2011).  On the economic side, the models calculate hypothetical outcomes under the assumption of profit maximizing or cost minimizing agents. Such optimization models may offer a reference for the achievable but they are not capable to explain how real human beings react to particular political measures – i.e. usually in a much less optimal way. If the single systems are seen in such an insufficient way the connection or interdependencies must lack complexity – and accuracy – as well.
The focus of our research will be the question how a dynamically developing economy based on individual interactions of less than perfectly rational agents  and placed within a complex natural environment can be steered towards a sustainable development. What policy instruments are needed? How can we analyse their effects in a more substantial way? More precisely, we try to analyse the impact of particular environmental policy instruments, like an eco-tax or tradable permits, on the decisions and behaviour of economic agents and on the economic system as a whole.
To answer these questions we will use an agent-based model which enables us to account for the nonlinearities of the ecological as well as the economic system and depict both in more of their actual complexity (van den Bergh 1997). Our ecological-economic  model is based on a Nelson and Winter model (1982) – a seminal work for evolutionary economics  – which has been expanded by Thesing (2011 unpublished) and Klippert (2011 unpublished) and will be further enhanced to include a sub-model for a renewable resource´s dynamics as well as a political decision unit. Following the Nelson/Winter logic, the relevant type of economic agent we are investigating are companies. The analysed behaviour is their R&D expenditures into more or less sustainable technologies which exert a differing pressure on a renewable resource. The model shall allow us to analyse the effect of environmental policy measures on bounded rational agents who interact and adapt their strategies and decisions to a changing ecological-economic environment. These results will be compared to the predictions of standard environmental economics and it shall be discussed where and why they diverge.

1Therefore a rather undisputed claim into which the general definition can be translated is represented by Herman Daly´s management rules of sustainability (Daly 1996):
• The extraction of renewable resources must not exceed the
   regeneration capacity of the resource.
• Non-renewable resources must only be depleted in as much as an
   alternative is build up.
• Emissions and waste must not exceed the assimilation capacity of the
   ecological system.

2 It is, e.g. not astonishing that a CO2 emission trading scheme which barely restricts emissions (as in the first trading period) does not lead to substantial CO2 prices.

3In this later view the ecological system seems to be regarded as a “sack of resources” (Isenmann et al. 2008) which can be used without regard for its own internal dynamics (Christensen 1991).

4See Simon 1997, 1982; Geisendorf 2001  for the concept of bounded rationality.

5Ecological Economics is a sub-branch of economics which explicitly tries to consider the complexity of the natural system as well as its interdependencies with the economic system and criticizes the too narrow view of environmental and resource economics (Costanza et al. 1991).

6See Witt 2003; Geisendorf 2009 for the concept of evolutionary economics.


Links to other sub-projects

  • Company level: Since we want to analyse the impact of policy instruments on companies´ behaviour it would be interesting to get a deeper understanding of how companies think about sustainability management. Do they think it’s necessary and what are their efforts to implement it? In the model we use the company’s single aim is to maximise respectively increase its profit until an individually chosen aspiration level is reached. It could be interesting to implement one or more additional aims in order to setup a system of aims. The questions regarding this issue would be: What are the main aims of a company and how are the company’s resources allocated on those different aims?
  • Financial markets: In the model we use the companies or agents are able to adjust their investments and their expenses for R&D in order to find a new production technology which may ensure them a higher market share and therefore a higher revenue. Up to now the agents have just a very rudimental financial restriction in the way that they will (only) get money from the financial market without any constraints if they realised some profit in the former period. In order to make the model a bit more realistic it would be useful to get some information about the company’s actual possibilities of capital provision on financial markets – and about the connection between more or less sustainability on the companies level and investors choices.

 

References

Beckenbach, Frank (2001): Beschränkte Rationalität und Systemkomplexität: Ein Beitrag zur Ökologischen Ökonomik. Marburg: Metropolis-Verlag.

Bergh, Jeroen C. J. M. van den (1997): Ecological Economics and Sustainable Development: Theory, methods, and applications. Cheltenham: Elgar.

Christensen, Paul (1991): Driving Forces, Increasing Returns, and Ecological Sustainability. In: Costanza, R. (eds.):  Ecological Economics. New York: Columbia University Press, p. 75-87.

Costanza, Robert (ed.)  (1991): Ecological Economics. New York: Columbia University Press.

Costanza, Robert; Daly, Herman; Bartholomew, Joy A.  (1991): Goals, Agenda, and Policy Recommendations for Ecological Economics. In: Costanza, R. (ed.):  Ecological Economics. New York: Columbia University Press, p. 1-20.

Daly, Herman (1996): Beyond Growth: The economics of sustainable development. Boston and Massachusetts: Beacon Press.

Geisendorf, Sylvie (2001): Evolutorische Ökologische Ökonomie. Metropolis, Marburg

Geisendorf, Sylvie (2009):  The economic concept of evolution – Self-organization or Universal Darwinism? Journal of Economic Methodology, Vol.16(4): 377-391.

Isenmann, Ralf; Bey, Christoph; Keitsch, Martina (2008): Beyond a sack of resources. Nature as a model – core feature of Industrial Ecology. Changing Stocks, Flows and Behaviors in Industrial Ecosystems. Matthias Ruth; Brynhildur Davidsdottir (Eds.). Cheltenham (UK), Northampton (USA): Edward Elgar, p. 157-181.

Klippert, Christian (2011, unpublished): Ein evolutorisches ökologisch-ökonomisches Modell: Darstellung und Simulation unter Berücksichtigung ausgewählter umweltpolitischer Instrumente.

Nelson, Richard; Winter, Sidney (1996): An evolutionary theory of economic change. Cambridge and Mass.: Belknap Press.

Simon, Herbert Alexander (1982): Theories of bounded rationality. In: Models of Bounded Rationality. Cambridge and Mass.: The MIT Press, p. 408-423.

Simon, Herbert Alexander (1997): Bounded rationality. In: Models of Bounded Rationality. Cambridge and Mass.: The MIT Press, p. 291-294.

Thesing, Frank (2011, unpublished): Koevolutorische Elemente des technischen Fortschritts und seine Bedeutung für die (ökologisch orientierte) Nachhaltigkeitsdiskussion.

Tietenberg, Tom; Lewis, Lynne (2011): Environmental & Natural Resource Economics, 9th edition, Pearson

WCED (1987): Our Common Future. Oxford: Oxford University Press.

Witt, Ulrich (2003): The Evolving Economy: Essays on the Evolutionary Approach to Economics, Cheltenhan: Edward Elgar.

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