Abstract for:Ecological Economic System Modelling with a Focus on Endogenous Innovation and Resilience
This study addresses the dynamics of an Ecological Economic System (EES) embodying renewable but exhaustible supply of productive resources. We capitalise on recent developments in the modelling of production functions in dynamic systems and present an analysis of the effect of innovation on an EES, with the specific focus on natural resource scarcity. Using a dynamic two-sector (resource and manufacturing), three-input (labour, resource, and man-made capital) model of an EES, this study contributes methodologically to the existing literature in three ways: 1) the model employs a normalised CES (NCES) production function so that the system can represent, in a time-consistent manner, the effect of relative scarcity between the natural and man-made capital on the sustainability of the EES. 2) the state of production technology, represented by the substitutability, s, between the natural and man-made capital, is endogenously determined by the relative scarcity of the two inputs. In other words, s is no longer an invariant, exogenous parameter as it is in earlier studies. 3) our model extends the literature that provides an analytical framework based on decentralised system outcomes with myopic agents rather than a centralised system based on a benevolent social planner's infinite-time optimization. We use optimization to find parameter combinations that lead to different collapse scenarios.