Abstract for: System Dynamics Implementation of an Extended Brander and Taylor-like Easter Island Model
We provide a system dynamics implementation of an important ecological economics model. Such models are typically constrained to use functions chosen “conveniently” to allow for analytic solution, such as the Cobb-Douglas function. This function however has the undesirable attribute that the elasticity of substitution is one. Fixed elasticity does not allow for the substitutability between man-made capital and natural capital to change, which is vital for economic sustainability. Using system dynamics removes this constraint and enables more realistic ecological economics models containing functions not amenable to analytic solution. The base model is the natural resource and population growth model developed by Brander and Taylor (1998), which employs a Lotka-Volterra type structure, and strictly follows economic theory in all aspects of its formulation. To make the model more realistic and to enable the consideration of important environmental issues, we discuss and employ model extensions inspired by modern economics theory. One extension is to use a CES production function, which incorporates a dynamic substitutability parameter that enables the study of long-term economic sustainability. The model does not have an analytic solution, necessitating a simulation approach. Importantly, the system dynamics implementation robustly returns to equilibrium after disturbances.