Rethinking optimal control theory in resource economics

By Serguei Kaniovski, Economist with the Austrian Institute of Economic Research (WIFO)

Serguei Kaniovski and colleagues from IIASA and the Steklov Mathematical Institute of the Russian Academy of Sciences revisited a classic growth model in resource economics using recent advances in optimal control theory.

The late 1960s and early 1970s gave rise to Doomsday Models that predicted a collapse of Western Civilization under the pressure of over-population and environmental pollution. The very influential 1972 Club of Rome’s report on the “Limits to Growth” painted a gloomy picture, sparking an ongoing debate. One question was whether the scarcity of natural resources like fossil fuels would limit growth and cause a substantial decline in people’s standard of living.

The Doomsday reasoning was met with doubt by the economists of that time, leading the future Nobel Prize laureate and growth theorist, Robert Solow, to state that “the various Doomsday Models are worthless as science and as guides to public policy“. In a combined effort, economists developed a class of growth models with resource constraints. The conclusions they reached using the Dasgupta-Heal-Solow-Stiglitz (DHSS) modeling framework offered a more optimistic outlook.

© Kantver | Dreamstime.com

Economic applications have been well ahead of the mathematical theory used for identifying optimal economic policies, leaving some model solutions unexposed and some technical issues unsettled. The theory that allows us to identify optimal policies and describe the model dynamics was originally developed in the 1950s for engineering applications but has since become the main tool for analyzing economic growth models. These models however contain many features that are not standard to optimal control theory – a subfield of mathematics that deals with the control of continuously operating dynamic systems – which makes a fully rigorous analysis difficult. The key theoretical challenges are infinite planning horizons and nonstandard control constraints.

In our latest paper we offer a complete and rigorous analysis of the welfare-maximizing investment and depletion policies in the DHSS model with capital depreciation and arbitrary (decreasing, constant, and increasing) returns to scale. The investment policy specifies the portion of the final output to be invested in capital. A depletion policy says how fast a finite stock of exhaustible resources should be used. We prove the existence of a solution and characterize the behavior of solutions for all combinations of the model parameters using necessary rather than sufficient (Arrow’s theorem) optimality conditions.

In the main case of decreasing, constant, or weakly increasing returns to scale, the optimal investment and depletion policies converge to a constant share of output invested in capital and a constant rate of depletion of the natural resource. The optimal investment ratio decreases with the longevity of capital and impatience. The relationship between the optimal investment ratio and the output elasticity of produced capital is ambiguous. The performed analytical analysis identifies those relationships among model parameters that are critical to the optimal dynamics. In this, it differs from more conventional scenario-based approaches. From a practical point of view, application of the model to real data could be helpful for evaluating actual depletion and investment policies.

Strongly increasing returns to scale make it optimal to deplete the resource without investing in produced capital. Whether a zero-investment strategy is followed from the outset, from an instant of time, or asymptotically will depend on the sizes of the capital and resource stocks. In some special cases of increasing returns, welfare-maximizing investment and extraction policies may not exist under strong scale effects in resource use. This occurs when an initial stock of capital is small relative to the initial resource stock. It implies that it would have been impossible to formulate a welfare-maximizing policy in the early history of humanity, when produced capital was scarce and resources were abundant.

Reference

Aseev S, Besov K, & Kaniovski S (2019). Optimal Policies in the Dasgupta—Heal—Solow—Stiglitz Model under Nonconstant Returns to Scale. Proceedings of the Steklov Institute of Mathematics 304 (1): 74-109. [pure.iiasa.ac.at/15946]

Note: This article gives the views of the author, and not the position of the Nexus blog, nor of the International Institute for Applied Systems Analysis.

My post doc experience at IIASA

By Nandita Saikia, Assistant Professor of Population Studies at Jawaharlal Nehru University, New Delhi, and former postdoctoral researcher at IIASA

IIASA alumna Nandita Saikia, looks back on the two years that she spent living in Austria while working as a postdoctoral researcher in the World Population Program.

The submission of my PhD thesis, marriage, taking up a university position, and becoming a mother, all happened rather quickly for me. By the time I realized that I wanted to experience working outside of my own country, a good five years had flown by from the day that I received my PhD. For a female academic, who is trying to balance family and work, a decision to move abroad was never going to be easy. It needed a lot of planning, not only in terms of the research topic that I wanted to pursue, but also in terms of organizing things in a way that would lead to the least disruption for the research students I was supervising and of course, my family.

Nandiita Saikia | © Nandita Saikia

With little hope and many conditions, I searched for postdoctoral positions on the websites of various institutes. I was amazed when I found an advertisement for a postdoc position at IIASA, which mentioned that it had extended application deadlines for another 18 months – specifically to accommodate female candidates on maternity leave. This gender sensitive rule made my application possible, and ultimately gave me a rich experience and memories that I will cherish forever.

Looking back at the past two years at IIASA, a long list of reasons why this was such an amazing time of my and my family’s lives, comes to mind. The institute is housed in a beautiful two hundred and seventy five year old castle in Laxenburg just outside of Vienna. As an IIASA employee, my family and I could access the green imperial park once meant for Austria’s iconic empress Sissi, at any time. Apart from massive, century old trees that may have shaded Sissi on her own visits, the park contains a spring, a waterfall, and a lake with numerous monuments to Austrian royal families that frequented it over the centuries. The lush green trees, the musical sound of the spring, together with chirping wild ducks and swans, the Laxenburg castles, the tall yellow church under the deep blue sky – all constantly stimulated the spirit of a nature lover like me.

In terms of the more practical aspects of working at IIASA, staff from administration were always available to address all our personal and professional issues efficiently and warmly. We were supported with everything from extending our visas, finding a suitable place to live, and communicating with my son’s school in German, to locating the right physician. The IIASA Communication Department also helped me to convey the meaning of my research in “non-technical language” to a wider audience, for whom the findings are ultimately meant.

The soul of IIASA is truly international and inter-disciplinary. From North to South, East to West, I met colleagues from all parts of the world. The overall research environment is conducive to doing quality research. Our program director, Wolfgang Lutz, extended all possible support for me to stay at IIASA for two years. I however still had enough freedom to manage my responsibilities in terms of the supervision of my PhD students back in India.

IIASA always encourages its employees to be active and fit and supports them to do this in numerous ways. There are a number of clubs and activities on offer, including yoga, a music club, a running club, a swimming club, cycling, German lessons, aerobics, and a tennis club. The institute also maintains a gym for staff members. Some of my colleagues even kept workout clothes in the office for when they could manage to participate in some of these activities amidst their busy schedules. Although it was of course not possible to be in all the clubs, you had a choice, which contributed to the overall “feel good” environment.  Being an international research organization, IIASA celebrates the different cultures of its staff members by organizing themed social gatherings like Asia Day, Latin American Day, Canada Day, and Mediterranean Day, to name a few, during which staff have the chance to taste authentic homemade cuisines and see cultural music or dance performances by colleagues. My heart knew no bounds when I got a chance to perform a Bollywood number and an Indian folk dance with my international colleagues!

I also developed an affinity with the IIASA Women in Science Club, which often organized “Meet, Greet and Eat” sessions during which we had the opportunity to interact with established women scientists in an informal way. It was indeed an eye opener to learn about how they overcame common challenges either in their early or later careers.

During our stay, we fully experienced life in Vienna, which has repeatedly been ranked as the best city in the world to live in. The centrality of Vienna also helped us to explore many neighboring countries. In our second year, we lived in Laxenburg where we felt very much at home. We loved how smoothly the little town runs while offering everything needed for a high quality life when raising young children.

Our time at IIASA was extremely productive, but we still felt as if we were in Vienna for a two-year long vacation! If someone asks me whether they should consider IIASA for a post doc or the Young Scientists Summer Program, my answer will be: “Yes, don’t even think twice!”

Nandita Saikia was a postdoctoral researcher at IIASA from 2017 to 2019. More information available at www.nanditasaikia.com.

Note: This article gives the views of the author, and not the position of the Nexus blog, nor of the International Institute for Applied Systems Analysis.

Beyond averages and aggregates

By Shonali Pachauri, Senior Researcher in the IIASA Energy Program

Shonali Pachauri explains why data, indicators, and monitoring at finer scales are important to ensure that everyone benefits from policies and efforts aimed at achieving national and global development goals.

A world where no one is left behind by 2030, is the promise nations have made by adopting the United Nations’ Agenda for Sustainable Development. But how does one ensure that no one is left behind? It requires designing inclusive policies and programs that target the most vulnerable and marginalized regions and populations. Sound data and indicators underpin our current understanding of the status of development and are an important part of periodic reviews to determine the direction and pace of progress towards achieving agreed goals. These form the basis of informed decisions and evidence-based policymaking. While an exhaustive list of indicators has been prescribed to monitor progress towards the globally agreed goals, these have been largely defined at a national scale. These goals rely overwhelmingly on simple averages and aggregates that mask underlying variations and distributions.

Indian woman walking home with fire wood © Devy | Dreamstime.com

Recent work I’ve been involved in makes the pitfalls of working with averages and aggregates alone abundantly clear. They can obscure uneven patterns of changes and impacts across regions and groups within the same nation. The overall conclusion of this work is that, even if the globally agreed goals are met by 2030, this is no guarantee that everyone will benefit from their achievement.

A recent Nature Energy – News & Views piece I was invited to write reports on a study that assessed the impacts of China’s recent coal to electricity program across villages in the Beijing municipal region. The program subsidizes electricity and electric heat pumps and has been rolling out a ban on coal use for household heating. The study found that the benefits of the program to home comfort, air quality, and wellbeing varied significantly across rich and poor districts. In poor districts, the study found that the ban was not effective as poor households were still unable to afford the more expensive electric heating and were continuing to rely on coal. Studies such as this one that help us understand how and why benefits of a program may vary across regions or population groups can aid policy- and decision makers in formulating more fair and inclusive policies.

In other recent research carried out with colleagues in the IIASA Energy Program, the Future Energy Program at the Fondazione Eni Enrico Mattei (FEEM) in Italy, and the Institute for Integrated Energy Systems at the University of Victoria, Canada, we developed a detailed satellite nightlights derived dataset to track progress with providing electricity access at a sub-national level in Africa. We found that while progress with electrification between 2014 and 2018 varied across nations, at a sub-national provincial level, disparities were even more pronounced. Even more surprising, while electricity access is generally higher and easier to extend in urban areas, we found urban pockets where access has stagnated or even worsened. This correlated with areas where in-migration of populations had been high. These areas likely include urban slums or peri-urban regions where expanding electricity access continues to be challenging. Furthermore, our analysis shows that even where access has been extended, there are regions where electricity use remains extremely low, which means that people are not really benefitting from the services electricity can provide.

In a final example, of research carried out with collaborators from the University of British Columbia and the Stockholm Environment Institute, we evaluated a large nationwide program to promote cooking with liquefied petroleum gas (LPG) in Indian households to induce a shift away from the use of polluting solid fuels. While this program specifically targets poor and deprived, largely rural households, our assessment found that although there has been an unprecedented increase in enrollments of new LPG customers under the program, this has not been matched by an equal increase in LPG sales. In fact, we found consumption of LPG by program beneficiaries was about half that of the average rural consumer. Moreover, when we examined how purchases were distributed across all new consumers, we found that about 35% of program beneficiaries purchased no refills during the first year and only 7% bought enough to substitute half or more of their total cooking energy needs with LPG. Clearly, the health and welfare benefits of a transition to cleaner cooking are still to be realized for most people covered by this program.

Analyses, such as the examples I’ve discussed here, clearly highlight that we need data, indicators, and monitoring at much finer scales to really assess if all regions and populations are benefitting from policies and efforts to achieve national and globally agreed development goals. Relying on aggregates and averages alone may paint a picture that hides more than it reveals. Thus, without such finer-scale analysis and an understanding of the distributional impacts of policies and programs, we may end up worsening inequalities and leaving many behind.

 References:

[1] Pachauri S (2019). Varying impacts of China’s coal ban. Nature Energy 4: 356-357. [pure.iiasa.ac.at/15905]

[2] Falchetta G, Pachauri S, Parkinson S, & Byers E (2019). A high-resolution gridded dataset to assess electrification in sub-Saharan Africa. Scientific Data 6 (1): art. 110. [pure.iiasa.ac.at/15982]

[3] Kar A, Pachauri S, Bailis R, & Zerriffi H (2019). Using sales data to assess cooking gas adoption and the impact of India’s Ujjwala program in rural Karnataka. Nature Energy [pure.iiasa.ac.at/15994]

Note: This article gives the views of the author, and not the position of the Nexus blog, nor of the International Institute for Applied Systems Analysis.

The Earth is our spaceship: Perspectives from space

Rachel Potter, IIASA communications officer, interviews retired NASA Astronaut and Principal of AstroPlanetview LLC, Sandra H Magnus on insights about our world she has gained from her time living on the International Space Station.

©NASA Photo / Houston Chronicle, Smiley N. Pool

Q: Can you tell us a bit about your specific areas of research as a scientist? 

A: My PhD was on a new material system being investigated for thermionic cathodes, which are used as electron sources for satellite communication systems. My research was an effort to look at the system methodically and from a science viewpoint to understand physically what was going on in order to inform the design of more robust devices. If you can operate the cathode at a lower temperature, that means a longer life for it, which is a good thing for satellites! Post-PhD I was however admitted to the Astronaut Office and that, quite frankly, pretty much put an end to my career as a researcher, or at least as a principal investigator (PI). The work I did on the International Space Station was at the direction of other PIs who had proposed, and been granted, experiments in space.

Q: Your career has spanned a wide range of settings from the NASA Astronaut Corps to your current role as Principal of AstroPlanetview LLC – what is the common thread or focus that has run through your work? 

A: Following my curiosity and looking for challenges. I always want to be challenged and feel that I am learning new things. If I feel that I have become stagnant, I start looking for how to change that situation.

Q: What have been the personal highlights of your career? 

A: Clearly flying in space! I feel very fortunate, however, to have been in the Astronaut Office during the era of the space station. I enjoyed very much working in a collaborative, multicultural, international environment where we had a big team of people from around the world working on something that benefits the planet.

Q: What are the greatest lessons you have learned from seeing the Earth from space?

A: I was so excited to FINALLY be going into space after hoping to do just that for over 20 years. The Earth is our spaceship – a closed system in which everything on the planet affects, and is connected to everything else on the planet. An action somewhere means a reaction somewhere else, even if it is not always first order (and usually it is not). Also, the planet looks incredibly beautiful and very fragile – we have to take care of it!

© NASA STS-126 Shuttle Mission full crew photo (5 March 2008), Sandra H Magnus far left.

Q: What do you see as key to solving the complex problems the Earth faces in terms of sustainability? 

A: Having the will to do it as a community. If you have the will, commitment and a clear, agreed-to, articulation of the common goal, we can pretty much accomplish anything we want to.

Q: How do you see IIASA being able to build bridges between countries across political divides? 

A: Well, when we want to solve problems, it really is all about relationships at the end of the day. It is easy to demonize or keep your distance from abstract ideas or the ubiquitous “They” but when you meet people, understand them as individuals and the context of their backgrounds that lead them to have different views and approaches to life and solving problems, it is much easier to visualize how you can work together to tackle issues. The relationships are the bridges.

Q: What advice would you give to young women researchers wanting to make it into Aeronautics? 

A: To young women (and young men, too, really) I would say, “If you have a dream to go do something, then you owe it to yourself to go for it and try it!” Never let anyone else define who you are or tell you what you can or cannot do – believe in yourself and give it a try. Maybe you will make it, maybe you will not, but it will be on your own terms, with you pushing yourself and regardless of the outcome you will have a deeper understanding of yourself, and that is always a good thing.

Sandra H Magnus visited IIASA on 21 June 2019 in cooperation with the US  Embassy Vienna, to give a lecture entitled “Perspectives from Space”  to IIASA staff and this year’s participants of the IIASA Young Scientists Summer Program. IIASA has a worldwide network of collaborators who contribute to research by collecting, processing, and evaluating local and regional data that are integrated into IIASA models. The institute has 819 research partner institutions in member countries and works with research funders, academic institutions, policymakers, and individual researchers in national member organizations.

Notes:
This article gives the views of the authors, and not the position of the Nexus blog, nor of the International Institute for Applied Systems Analysis.

Fostering cooperation, good governance, and connectivity in the digital era

By Dmitry Erokhin, Research Assistant in the IIASA Advanced Systems Analysis Program

Dmitry Erokhin shares his thoughts on the promotion of economic progress and security through energy cooperation, good governance, and connectivity in the digital era.

Nadejda Komendantova and Dmitry Erokhin at the OSCE EEF meeting in Bratislava © Dmitry Erokhin

From 27 to 28 May 2019, Bratislava hosted the Second Preparatory Meeting of the 27th Economic and Environmental Forum of the Organization for Security and Cooperation in Europe (OSCE EEF) on “Promoting economic progress and security in the OSCE area through energy cooperation, new technologies, good governance and connectivity in the digital era”.

As part of my work on digitalization in Greater Eurasia, I was particularly interested in attending this meeting.

A major part of the event was devoted to questions surrounding energy security, which is a very important factor of cooperation in the OSCE area. All 57 participating states across North America, Europe, and Asia are interested in stable energy supply. Doing energy right is a way to promote progress, security, and prosperity. Orientation towards sustainable development, limiting the use of conventional energy sources, oil conflicts, and cyber attacks make both energy demanders and suppliers search for new solutions. In this regard, the use of renewable resources promises long-term benefits in terms of energy efficiency, new jobs, as well as a secure and resilient energy sector. This is however not possible without peace, which makes the protection of infrastructure crucial. There is no prosperity without peace and no peace without prosperity.

I found it particularly valuable that new technologies were included in the discussion. Blockchain – a system in which a record of transactions made in bitcoin or another cryptocurrency are held across several computers that are linked in a peer-to-peer network – along with big data, are creating new opportunities in the energy sector, for example, in terms of new forms of energy trading. However, they can also pose some risks as they create certain dependencies, thus raising questions of sustainability. For instance, automated driving raises many regulatory issues on how to ensure against cyber attacks and missiles, or how to divide responsibilities between producers and users. Advanced technologies have to be employed safely and efficiently. International organizations could play a vital role in enacting common standards and regulatory norms for digitalization and connectivity in this regard. One grand example here is the single window recommendation, which is a trade facilitation idea that enables international traders to submit regulatory documents at a single location. The idea is that such a system would facilitate trade through good governance.

The establishment of regional communication platforms and the development of science, research, and innovations are of particular importance. Key agents need to talk about secure and clean energy. This could be achieved through intra-institutional cooperation and inclusive dialogue. I believe that institutions like IIASA can play a huge role here.

Talking about new technologies, it is an important task to conduct studies on barriers to trade, especially in the context of blockchain and machine learning technologies in digital trade in order to detect inefficiencies at borders and improve market access. In the energy field, there are many controversial estimates (simultaneously in favor of conventional and renewable energy sources), which also make independent reputable studies essential.

Nadejda Komendantova, a researcher with the Advanced Systems Analysis Program at IIASA also represented the institute at the OSCE meeting, where she moderated a session on protecting energy networks from natural and man-made disasters. The sessions’ participants discussed the impact of these factors on energy security, analyzed opportunities and threats for secure energy networks connected with new technologies, raised questions of resilience, and talked about the mitigation of threats through effective policies and cooperation. The OSCE Critical Energy Infrastructure Protection (CEIP) Digital Training Platform was presented during the session.

To conclude, I would like to emphasize that we need more such constructive and fruitful discussions to catalyze trust, growth, security and connectivity. Partnerships create political will and make open dialogue and mutual support very important. I believe that organizations like IIASA are key to making this possible.

Note: This article gives the views of the author, and not the position of the Nexus blog, nor of the International Institute for Applied Systems Analysis.