Balancing the Risk of Tipping: Early Warning Systems from Detection to Management

42 Pages Posted: 23 Jan 2024

See all articles by Florian Diekert

Florian Diekert

University of Augsburg

Daniel Heyen

RPTU Kaiserslautern-Landau

Frikk Nesje

University of Copenhagen - Department of Economics

Soheil Shayegh

RFF-CMCC European Institute on Economy and the Environment (EIEE)

Date Written: 2024

Abstract

Early warning signals (EWS) of imminent regime shifts can be identified through the observation of a system’s behavior under increasing stress and before crossing a tipping point. Despite many advances in the detection of EWS in recent years, EWS are yet to find direct application in management. Here, we focus on operationalizing the EWS information in an early warning system consisting of a tipping indicator (e.g., autocorrelation), whose value increases as the system approaches the tipping point, and a trigger value, beyond which an EWS is sent. We demonstrate how such an early warning system allows managers to balance the risk of tipping by providing information for updating their belief about the location of the tipping point. In particular, deployment of an early warning system results in taking more cautious early steps while it encourages more risk taking behavior in later stages if no EWS is sent. We uncover a tension between better information about the location of the tipping point and increased risk of crossing it as a result of EWS. Our framework complements the emerging EWS knowledge in the natural sciences with a better understanding of how, when, and why EWS improve management.

Keywords: catastrophic regime shifts, tipping points, early warning signals, learning, optimal ecosystem management

JEL Classification: C610, D830, Q540

Suggested Citation

Diekert, Florian and Heyen, Daniel and Nesje, Frikk and Shayegh, Soheil, Balancing the Risk of Tipping: Early Warning Systems from Detection to Management (2024). CESifo Working Paper No. 10892, Available at SSRN: https://ssrn.com/abstract=4703296 or http://dx.doi.org/10.2139/ssrn.4703296

Florian Diekert (Contact Author)

University of Augsburg ( email )

Universitätsstr. 2
Augsburg, 86159
Germany

Daniel Heyen

RPTU Kaiserslautern-Landau ( email )

Kaiserslautern
Germany

Frikk Nesje

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5, Bygn 26
Copenhagen, 1353
Denmark

Soheil Shayegh

RFF-CMCC European Institute on Economy and the Environment (EIEE) ( email )

Via Bergognone, 34
Milan
Italy

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