Robust Management of Systemic Risks and Food-Water-Energy-Environmental Security: Two-Stage Strategic-Adaptive GLOBIOM Model

Ermolieva, T., Havlik, P. ORCID:, Ermoliev, Y., Khabarov, N. ORCID:, & Obersteiner, M. ORCID: (2021). Robust Management of Systemic Risks and Food-Water-Energy-Environmental Security: Two-Stage Strategic-Adaptive GLOBIOM Model. Sustainability 13 (2) e857. 10.3390/su13020857.

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Critical imbalances and threshold exceedances can trigger a disruption in a network of interdependent systems. An insignificant-at-first-glance shock can induce systemic risks with cascading catastrophic impacts. Systemic risks challenge traditional risk assessment and management approaches. These risks are shaped by systemic interactions, risk exposures, and decisions of various agents. The paper discusses the need for the two-stage stochastic optimization (STO) approach that enables the design of a robust portfolio of precautionary strategic and operational adaptive decisions that makes the interdependent systems flexible and robust with respect to risks of all kinds. We established a connection between the robust quantile-based non-smooth estimation problem in statistics and the two-stage non-smooth STO problem of robust strategic-adaptive decisionmaking. The coexistence of complementary strategic and adaptive decisions induces systemic risk aversion in the form of Value-at-Risk (VaR) quantile-based risk constraints. The two-stage robust decision-making is implemented into a large-scale Global Biosphere Management (GLOBIOM) model, showing that robust management of systemic risks can be addressed by solving a system of probabilistic security equations. Selected numerical results emphasize that a robust combination of interdependent strategic and adaptive solutions presents qualitatively new policy recommendations, if compared to a traditional scenario-by-scenario decision-making analysis.

Item Type: Article
Uncontrolled Keywords: interdependent systems; systemic risks; two-stage non-smooth stochastic optimization; quantile-based risk constraints; robust strategic and adaptive decisions
Research Programs: Advancing Systems Analysis (ASA)
Advancing Systems Analysis (ASA) > Exploratory Modeling of Human-natural Systems (EM)
Biodiversity and Natural Resources (BNR)
Biodiversity and Natural Resources (BNR) > Integrated Biosphere Futures (IBF)
Depositing User: Luke Kirwan
Date Deposited: 02 Feb 2021 14:29
Last Modified: 02 Feb 2022 14:13

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