John Sterman

Abstract:
From climate change, deforestation, and depletion of fossil fuels to overexploited fisheries, species extinction, and poisons in our food and water, our society is unsustainable and it is getting worse fast. Many advocate that overcoming these problems requires the development of systems thinking. We’ve long been told that the unsustainability of our society arises because we treat the world as unlimited and problems unconnected when we live on a finite “spaceship Earth” in which “there is no away” and “everything is connected to everything else.” The challenge lies in moving from slogans to specific tools and processes that help us understand complexity, design better policies, facilitate individual and organizational learning, and catalyze the technical, economic, social, political and personal changes we need to create a sustainable society. Here I outline a design for a systems science of sustainability that rises to this challenge. Where the dynamics of complex systems are conditioned by multiple feedbacks, time delays, accumulations and nonlinearities, our mental models generally ignore these elements of dynamic complexity; where the consequences of our actions spill out across time and space, across disciplinary and organizational boundaries, our universities, corporations, and governments are organized in silos that focus on the short term and fragment knowledge. I describe how sustainability research, teaching and engagement with the policy process can be organized to provide scientifically grounded, reliable knowledge that crosses disciplinary boundaries, that engages multiple stakeholders, that grapples with unavoidable issues of ethics, values and purpose, and that leads to action.

Abstract:
The Intergovernmental Panel on Climate Change (IPCC) has been extraordinarily successful in the task of knowledge synthesis and risk assessment. However, the strong scientific consensus on the detection, attribution, and risks of climate change stands in stark contrast to widespread confusion, complacency and denial among policymakers and the public. Risk communication is now a major bottleneck preventing science from playing an appropriate role in climate policy. Here I argue that the ability of the IPCC to fulfill its mission can be enhanced through better understanding of the mental models of the audiences it seeks to reach, then altering the presentation and communication of results accordingly. Few policymakers are trained in science, and public understanding of basic facts about climate change is poor. But the problem is deeper. Our mental models lead to persistent errors and biases in complex dynamic systems like the climate and economy. Where the consequences of our actions spill out across space and time, our mental models have narrow boundaries and focus on the short term. Where the dynamics of complex systems are conditioned by multiple feedbacks, time delays, accumulations and nonlinearities, we have difficulty recognizing and understanding feedback processes, underestimate time delays, and do not understand basic principles of accumulation or how nonlinearities can create regime shifts. These problems arise not only among laypeople but also among highly educated elites with significant training in science. They arise not only in complex systems like the climate but also in familiar contexts such as filling a bathtub. Therefore they cannot be remedied merely by providing more information about the climate, but require different modes of communication, including experiential learning environments such as interactive simulations.

Abstract:
The MIT Sloan School of Management has created a set of interactive, web-based management flight simulators to teach key ideas in business, strategy, sustainability and related fields. These simulations are freely available to anyone through the MIT Sloan LearningEdge portal. Here I describe four simulations now available: Salt Seller (a multiplayer commodity pricing simulation); Eclipsing the Competition (learning curves, using the solar photovoltaic industry as the example); Platform Wars (competition in the presence of network externalities using the video game industry as the context); and Fishbanks (the Tragedy of the Commons in the context of renewable resource management, updating the classic game by Dennis Meadows). Each simulator teaches important concepts in management, strategy and/or sustainability. Each is grounded in a particular industry or firm, and comes with original case studies or briefing material describing the strategic challenges in these settings. Through these simulations, students, executives, policymakers and others can explore the consequences of different strategies so they can learn for themselves about the complex dynamics of difficult issues in a variety of important settings. I describe their purpose and use, illustrate their dynamics, and outline the instructor resources available for each.

Here we describe C-ROADS (Climate-Rapid Overview And Decision Support), a transparent, intuitive policy simulation model that provides policymakers, negotiators, educators, businesses, the media, and the public with the ability to explore, for themselves, the likely consequences of GHG emissions policies.

A dynamic systems perspective to raise questions about the processes of change required, at multiple scales.

Here we describe protocols for the role-play and the resources available to run it, including C-ROADS and all needed materials, all freely available at climateinteractive.org.

Abstract:
Our civilization is unsustainable and it is getting worse fast.  The human ecological footprint has already overshot the sustainable carrying capacity of the Earth, while population and economic growth are rapidly expanding our impact.  Meeting the legitimate aspirations of billions to rise out of poverty while reducing our global footprint to sustainable levels is the defining issue of the age.  Change and transformation are urgently needed throughout society.  But how can such change be achieved?  Here I offer a dynamic systems perspective to raise questions about the processes of change required, at multiple scales.  Within organizations, process improvement initiatives directed at cost, quality and productivity commonly fail.  Sustainability initiatives share many of the same attributes.  Why do so many such programs fail and what can be done to improve them?  At the industry level, many attempts to introduce radical new technologies such as alternative fuel vehicles exhibit “sizzle and fizzle” behavior.  Why, and what can be done to create markets for radical new technologies that are sustainable ecologically and economically?  At the level of the economy, does it all add up?  If firms are successful in “greening” their operations and products, does it actually move our economy towards sustainability, or simply lead to direct and indirect rebound effects?  Technological solutions promoting ecoefficiency and new, sustainable industries, while necessary, are not sufficient:  as long as everyone wants more, there is no technical solution to the problem.  Where, then, are the high leverage points to implement successful change programs in existing organizations, create new industries, address overconsumption and transform personal values?

Abstract:
Global negotiations to reduce greenhouse gas (GHG) emissions under the United Nations Framework Convention on Climate Change (UNFCCC) have, so far, failed to produce an agreement sufficient to avoid the most dangerous consequences of climate change. But even if the negotiations yielded a treaty with binding commitments such an agreement could not be ratified or implemented in many nations due to inadequate public support. The scientific consensus on the reality and risks of anthropogenic climate change has never been stronger, yet public support for action has fallen. Educators, the media, civic and business leaders, and citizens need tools to understand, for themselves, the dynamics of climate change and its geopolitical implications. The World Climate simulation provides an interactive role-play environment through which participants can explore these issues using a scientifically sound simulation model of the climate to show the consequences of proposed emissions paths. Participants play the roles of major GHG emitting nations and negotiate proposals to reduce emissions. Participants then receive immediate feedback on the implications of their proposals for atmospheric GHG concentrations, global mean surface temperature, sea level rise and other impacts with the C-ROADS climate policy simulation model now being used by negotiators and policymakers. The role-play enables participants to explore the dynamics of the climate and impacts of proposed policies in a way that is consistent with the best available peer-reviewed science but that does not prescribe what should be done. World Climate has been used successfully with diverse groups, including students, business executives and political leaders. Here we describe protocols for the role-play and the resources available to run it, including the C-ROADS model, briefing memoranda, facilitator guide, debriefing slides and videos of sessions, all of which are freely available at climateinteractive.org.

Matthew Amengual

Abstract:
Environmental regulation in middle-income and developing countries is often viewed with high degrees of pessimism. Although many countries have adopted protective laws, violations are widespread and institutions are weak. This paper analyzes the puzzle of shifting patterns of environmental regulation in Argentina, a country with widespread institutional weakness. Most regulators in Argentina take a firefighting approach, acting only when skirmishes emerge between communities and firms. Amidst regulatory chaos, improvements in the environmental performance of firms are few, and noncompliance remains the norm. However, in the province of Tucumán, the pattern of regulation shifted, and officials began to systematically enforce regulations. This paper traces shifts in patterns of enforcement back to broad pressures that provoked industry and
environmentalists to support increases in the internal and external components of state regulatory capacity. The analysis uncovers political dynamics that can contribute to strengthening the institutions necessary for sustainable development.

Abstract:
Regulations essential for improving labor standards are often ignored to the detriment of workers. In many countries, the agencies charged with enforcement lack resources and are subject to political interference. How can inspectors in flawed bureaucracies overcome these barriers and enforce labor regulations? Based on case studies of subnational variation in Argentina, this article develops a theory to explain enforcement in places with weak and politicized labor inspectorates. The framework focuses on two factors: the strength of linkages between bureaucrats and allied civil society organizations, and the level of administrative resources in the bureaucracy.
Linkages facilitate routinized resource sharing and the construction of pro-enforcement coalitions, and administrative resources determine whether bureaucrats use societal resources passively or strategically. By identifying pathways to enforcement that are
obscured by dominant approaches to studying labor inspection, this research opens up new possibilities for crafting strategies to improve labor standards.

Abstract:
Although the ultimate success of labor regulation in many economic sectors depends on a combination of state and private actors, to date, researchers have not studied the interaction between state and private regulation. What happens when these forms of regulation meet on the factory floor? Based on a case study of labor inspection and code of conduct implementation in the Dominican Republic, this paper argues that the comparative advantages of state and private actors can drive complementary state–private regulation. These findings suggest that private-voluntary initiatives can reinforce, rather than displace, state regulation.

Abstract:
Private, voluntary compliance programs, promoted by global corporations and nongovernmental organizations alike, have produced only modest and uneven improvements in working conditions and labor rights in most global supply chains. Through a detailed study of a major global apparel company and its suppliers, this article argues that this compliance model rests on misguided theoretical and empirical assumptions concerning the power of multinational corporations in global supply chains, the role information (derived from factory audits) plays in shaping the behavior of key actors (e.g., global brands, transnational activist networks, suppliers, purchasing agents, etc.) in these production networks, and the appropriate incentives required to change behavior and promote improvements in labor standards in these emergent centers of global production. The authors argue that it is precisely these faulty assumptions and the way they have come to shape various labor compliance initiatives throughout the world—even more than a lack of commitment, resources, or transparency by global brands and their suppliers to these programs—that explain why this compliance-focused model of private voluntary regulation has not succeeded. In contrast, this article documents that a more commitment-oriented approach to improving labor standards coexists and, in many of the same factories, complements the traditional compliance model. This commitment-oriented approach, based on joint problem solving, information exchange, and the diffusion of best practices, is often obscured by the debates over traditional compliance programs but exists in myriad factories throughout the world and has led to sustained improvements in working conditions and labor rights at these workplaces.

Jason Jay

Abstract:
For several decades, scholars and practitioners have sought novel organizational models and strategies for addressing big, complex problems: scientific and technological innovation; poverty alleviation; public health; education; and environmental sustainability among others. One result of this search has been the formation of hybrid organizations that combine elements of government bureaucracies, business firms, and non-profit associations. While some scholars have emphasized the innovative potential of synthesizing logics and practices, there are also challenging unintended consequences of such organizational complexity. Through an ethnographic study of the Cambridge Energy Alliance, I identify one such consequence: the emergence of a “service paradox.” When the organization accidentally enables work by competitors to solve the same social problem, it makes visible the conflicting definitions of success that are latent in the dual “client service” and “public service” missions of a hybrid organization. In making sense of paradoxical outcomes, actors grapple with the definition of success and can transform the organizational logic. The result can be oscillation among logics, or novel synthesis between them when outside perspectives enable a clearer view of the paradox. Hybrid organizations’ capacity for innovation depends in part on the results of this change process.

At some point, every one of us has contemplated more environmentally sustainable ways of living and working, from simple acts like recycling a soda can to bigger changes in business strategy and public policy. However, when we try to have a conversation about our ideas beyond “the choir” of environmental advocates, someone has branded us as a “holier than thou” jerk, or we have refrained from speaking or acting because we worry they might. We get stuck and only maybe later notice that we had a choice in the matter. Preparing students to create a sustainable world requires equipping them to carry on effective conversations and dialogue with a multitude of stakeholders.

This paper explores various pitfalls of the sustainability discourse, why we get stuck in them, and how we can escape them. It points out how advocates for the “flourishing of human and other life forever” undermine that flourishing in the way we engage with people every day. We discuss paradoxes or the persistent tensions and ambivalences we all experience that generate the pitfalls. When we distinguish these pitfalls and paradoxes, we can identify them in our lives and our conversations. We are then free to explore pathways out of and around what would otherwise remain latent traps. Pathways lead to greater authenticity, stronger relationships, and higher effectiveness. They contribute to a transformation of the sustainability “movement” or dialogue – to support the flourishing of our lives in the pursuit of the flourishing of all life.

Management education has come under fire for reinforcing the status quo in an unethical, inequitable, and unsustainable society. A variety of efforts are afoot to craft a new vision for management education consistent with a broader vision of sustainability. I summarize the aspects of the vision that have inspired me, juxtapose them with my view of the current reality, and then acknowledge a commonly missing piece: how potential agents of change in management education experience the creative tension between vision and reality, and the tensions inherent in the concept of sustainability. I point out the inauthenticity that sometimes results in our conversations about the future of management education. I suggest that personal transformation, via a frank and playful conversation about our competing commitments and inner tensions, may be a prerequisite for any serious effort at broader transformation. I invite a new kind of authentic dialogue about the present and future of management education.

Publication

Innovations for Healthy Value Chains:  Cases, Tools, & Methods

Bringing together several case studies as well as descriptions of tools and methods that have been useful to members of an ad hoc coalition of value chain veterans.

Chris Knittel

Abstract:
Ethanol made from corn comprises 10% of US gasoline, up from 3% in 2003. This dramatic increase was spurred by recent policy initiatives such as the Renewable Fuel Standard and state-level blend mandates, and supported by direct subsidies such as the Volumetric Ethanol Excise Tax Credit. Some proponents of ethanol have argued that ethanol production greatly lowers gasoline prices, with one industry group claiming it reduced gasoline prices by 89 cents in 2010 and $1.09 in 2011. The estimates have been cited in numerous speeches by Secretary of Agriculture Thomas Vilsack. These estimates are based on a series of papers by Xiaodong Du and Dermot Hayes. We show that these results are driven by implausible economic assumptions and spurious statistical correlations. To support this last point, we use the same statistical models and find that ethanol production “decreases” natural gas prices, but “increases” unemployment in both the US and Europe. We even show that ethanol production “increases” the ages of our children.

Abstract:
Technological advances in horizontal drilling deep underground have led to large-scale discoveries of natural gas reserves that are now economical to access. This, along with increases in oil prices, has fundamentally changed the relative price of oil and natural gas in the United States. As of December 2011, oil was trading at a 500 percent premium over natural gas. This ratio has increased over the past few months. The discovery of large, economically accessible natural gas reserves has the potential to aid in a number of policy goals related to energy. Natural gas can replace oil in transportation through a number of channels. However, the field between natural gas as a transportation fuel and petroleum-based fuels is not level. Given this uneven playing field, left to its own devices, the market is unlikely to lead to an efficient mix of petroleum- and natural gas-based fuels. This paper presents a pair of policy proposals designed to increase the nation’s energy security, decrease the susceptibility of the U.S. economy to recessions caused by oil-price shocks, and reduce greenhouse gas emissions and other pollutants. First, I propose improving the natural gas fueling infrastructure in homes, at local distribution companies, and along long-haul trucking routes. Second, I offer steps to promote the use of natural gas vehicles and fuels.

Abstract:
Efforts to reduce greenhouse gas emissions from transportation in the US have relied on Corporate Average Fuel Economy (CAFE) Standards and Renewable Fuel Standards (RFS). Economists often argue that these policies are inefficient relative to carbon pricing because they ignore existing vehicles and do not adequately reduce the incentive to drive. This paper presents evidence that the net social costs of carbon pricing are significantly less than previous thought. The bias arises from the fact that the demand elasticity for miles travelled varies systematically with vehicle emissions; dirtier vehicles are more responsive to changes in gasoline prices. This is true for all four emissions for which we have data—nitrogen oxides, carbon monoxide, hydrocarbon, and greenhouse gases—as well as weight. This reduces the net social costs associated with carbon pricing through increasing the co-benefits. Accounting for this heterogeneity implies that the welfare losses from a $1.00 gas tax, or a $110 per ton of CO2 tax, are negative over the period of 1998 to 2008 even when we ignore the climate change benefits from the tax. Co-benefits increase by over 60 percent relative to ignoring the heterogeneity that we document. In addition, accounting for this heterogeneity raises the optimal gas tax associated with local pollution, as calculated by Parry and Small (2005), by as much as 57 percent. While our empirical setting is California, we present evidence that the effects may be larger for the rest of the US.

Renewable fuel standards, low carbon fuel standards, and ethanol subsidies are popular policies to incentivize ethanol production and reduce emissions from transportation.

Abstract:
Instead of efficiently pricing greenhouse gases, policy makers have favored measures that implicitly or explicitly subsidize low carbon fuels. We simulate a transportation-sector cap & trade program (CAT) and three policies currently in use: ethanol subsidies, a renewable fuel standard (RFS), and a low carbon fuel standard (LCFS). Our simulations confirm that the alternatives to CAT are quite costly - 2.5 to 4 times more expensive. We provide evidence that the persistence of these alternatives in spite of their higher costs lies in the political economy of carbon policy. The alternatives to CAT exhibit a feature that make them amenable to adoption – a right skewed distribution of gains and losses where many counties have small losses, but a smaller share of counties gain considerably – as much as $6,800 per capita, per year.

We correlate our estimates of gains from CAT and the RFS with Congressional voting on the Waxman-Markey cap & trade bill, H.R. 2454. Because Waxman-Markey (WM) would weaken the RFS, House members likely viewed the two policies as competitors. Conditional on a district’s CAT gains, increases in a district’s RFS gains are associated with decreases in the likelihood of voting for WM. Furthermore, we show that campaign contributions are correlated with a district’s gains under each policy and that these contributions are correlated with a Member’s vote on WM.

Tom Kochan

Abstract:
What role can corporate codes of conduct play in monitoring compliance with international labour standards and improving working conditions in global supply chains? Addressing this question, the authors first summarize the results of research on factory audits of working conditions in 800 of Nike’s suppliers in 51 countries and two intensive case studies. They then discuss how the codes fit into the broader array of institutions, policies and practices aimed at regulating and improving working conditions, suggesting an evolutionary and complementary approach to regulating working conditions in global supply chains. They outline additional research and institutional innovations needed to test these ideas.

Abstract:
Collective bargaining, a core social institution, faces a fundamental transformational challenge. National survey data provide unique insights into the current status of the bargaining process — revealing challenges and opportunities. Awareness and use of interest-based bargaining principles is widespread but complicated by underlying tensions between labor and management. The findings illustrate the value of conducting an institutional-level analysis of a negotiations process.

Fiona Murray

Abstract:
Knowledge-based firms seeking competitive advantage often draw on the public knowledge stream – ideas embedded in public commons institutions – as the foundation for private knowledge – ideas firms protect through private intellectual property (IP) institutions. What are the implications of such strategies for long-run public knowledge production? We examine this question in human genetics, where policymakers debate this issue following dramatic expansion of IP ownership over the human genome. We show that gene patent grant decreases the long-run production of public genetic knowledge, with broader patent scope, private-sector ownership, complexity of the patent landscape, and the gene’s commercial relevance exacerbating the effect.

Abstract:
Although many scholars suggest that IPR has a positive effect on cumulative innovation, a growing “anti-commons” perspective highlights the negative role of IPR over scientific knowledge. At its core, this debate is centered on how intellectual property rights over a given piece of knowledge affect the propensity of future researchers to build upon that knowledge in their own scientific research activities.

This article frames this issue around the concept of dual knowledge, in which a single discovery may contribute to both scientific research and useful commercial applications and find evidence for a modest anti-commons effect. A key implication of dual knowledge is that it may be simultaneously instantiated as a scientific research article and as a patent. Such patent-paper pairs are at the heart of our empirical strategy. We exploit the fact that patents are granted with a substantial lag, often many years after the knowledge is initially disclosed through paper publication. The knowledge associated with a patent-paper pair therefore diffuses within two distinct intellectual property environments, one associated with the pre-grant period and another after formal IP rights are granted. Relative to the expected citation pattern for publications with a given quality level, the anti-commons perspective suggests that the citation rate for a scientific publication should fall after formal IP rights associated with that publication are granted. Employing a differences-in-differences estimator for 169 patent-paper pairs (and including a control group of other publications from the same journal for which no patent is granted), we find evidence for a modest anti-commons effect (the citation rate after the patent grant declines by between 10 and 20%). This decline becomes more pronounced with the number of years elapsed since the date of the patent grant and is particularly salient for articles authored by researchers with public sector affiliations.

Don Lessard

Abstract:
This chapter explores the uncertainties associated with today’s highly interdependent supply chains and the risks inherent their geographic dispersion and organizational fragmentation. It first lays out the sources of risk and their potential consequences to the corporations who are supply chain owners,
orchestrators, or customers; workers engaged in the global production system; entrepreneurs and larger firms who comprise the supply chains; and the regions and nations whose workers and firms make up the supply chain. It then considers how these risks can be mitigated and/or assigned to various parties in line with their comparative advantage. It concludes with a discussion of which risks are likely to be relatively well managed through the self-interest of the affected parties and which require concerted action across classes of actors.

Roberto Rigobon

Abstract:
We estimate the interrelationships among economic institutions, political institutions, openness, and income levels, using identification through heteroskedasticity (IH). We split our cross-national dataset into two sub-samples: (i) colonies versus non-colonies; and (ii) continents aligned on an East-West versus those aligned on a North-South axis. We exploit the difference in the structural variances in these two sub-samples to gain identification. We find that democracy and the rule of law are both good for economic performance, but the latter has a much stronger impact on incomes. Openness (trade/GDP) has a negative impact on income levels and democracy, but a positive effect on rule of law. Higher income produces greater openness and better institutions, but these effects are not very strong. Rule of law and democracy tend to be mutually reinforcing.

Karen Zheng

Abstract:
Whether and how trust and trustworthiness differ between a collectivist society, e.g., China, and an individualistic one, e.g., the U.S., generate much ongoing scientific debate and bear significant practical values for managing cross-country transactions. We experimentally investigate how supply chain members’ countries of origin—China versus the U.S.—affect trust, trustworthiness, and strategic information sharing behavior in a cross-country supply chain. We consider a two-tier supply chain in which the upstream supplier solicits demand forecast information from the retailer to plan production; but the retailer has an incentive to manipulate her forecast to ensure abundant supply. The levels of trust and trustworthiness in the supply chain and supplier’s capability to determine the optimal production quantity affect the efficacy of forecast sharing and the resulting profits. We develop an experimental design to disentangle these three aspects and to allow for real-time interactions between geographically distant and culturally heterogeneous participants. We observe that, when there is no prospect for long-term interactions, our Chinese participants consistently exhibit lower spontaneous trust and trustworthiness than their U.S. counterparts do. We quantify the differences in trust and trustworthiness between the two countries, and the resulting impact on supply chain efficiency. We also show that Chinese individuals exhibit higher spontaneous trust towards U.S. partners than Chinese ones, primarily because they perceive that individuals from the U.S. are more trusting and trustworthy in general. This positive perception towards U.S. people is indeed consistent with the U.S. participants’ behavior in forecast sharing. In addition, we quantify that a Chinese supply chain enjoys a larger efficiency gain from repeated interactions than a U.S. one does, as the prospect of building a long-term relationship successfully sustains trust and trustworthiness by Chinese partners. We advocate that companies can reinforce the positive perception of Westerners held by the Chinese population and commit to long-term relationships to encourage trust by Chinese partners. Finally, we also demonstrate that both populations exhibit similar pull-to-center bias when solving a decision problem under uncertainty (i.e., the newsvendor problem).

Abstract:
We study an NGO’s decisions when it attempts to remove a potentially hazardous substance from commercial use. Specifically, we determine under what market and regulatory conditions an NGO should target the industry versus the regulatory body in order to influence firms to replace the substance. We consider the perspectives of both a pragmatic NGO that takes into consideration firm profits when making its decisions and an antagonistic NGO that maintains an arms-length relationship with firms. Our results demonstrate that a pragmatic NGO should normally target the industry and leverage the competition between firms to ensure that a replacement is available to sensitive consumers. An antagonistic NGO, on the other hand, should examine the existing market structure to determine whether it should target the industry or the regulatory body. We demonstrate that our insights are robust to multiple extensions including varying the competition dynamics, the NGO targeting both the industry and the regulatory body, and the time discounting of replacement costs. In addition, we examine a scenario where a firm can lobby to counteract an NGO’s activism. We show that lobbying can actually benefit consumers by increasing the sensitivity of the market to a substance, thereby forcing the firm to replace.