Development, ecological resources and their management: A study of complexdynamic systems

Human well-being depends to a large extent on services provided by ecologic al systems. In poor countries, this dependence is more transparent than in industrialised countries where the dependence is more indirect. Effective m anagement of these systems requires a good understanding of their propertie s and in particular a knowledge of the dynamics of the systems, In the arti cle, the dynamics of one 'simple' system is analysed economically. The syst em is a lake and the interaction between the run-off of nutrients into the lake and the growth of either algae (eutrophication in lakes in northern Eu rope and North America) or water hyacinths (in lakes in southern and easter n Africa) is studied. It turns out that the dynamics exhibit bifurcation po ints so that there are two basins of attraction. If the system flips to one basin and it is regarded desirable to return to the other basin, there wil l be hysteresis. Assuming that there are different users of the lake, a dif ferential game is constructed that captures the strategic interests of the users. The resulting equilibrium shows first the conventional negative exte rnality that makes the equilibrium different from the optimal use of the la ke and a second, stronger, negative externality that will force the system to a different basin of attraction. Finally, we investigate the use of a ta x for bringing back the system to a Pareto optimum. (C) 2000 Elsevier Scien ce B.V. All rights reserved. JEL classification: Q25; C73; C69.