21 Aug 2009

A Model of Crisis

M. Scott Taylor delivered an incisive, thought-provoking and completely useful keynote address on crises and the factors that drive them at the EAERE conference I attended recently in Amsterdam.

What kinds of crises was he trying to describe? Global warming, collapse of an endangered species, economic meltdown, and so on...

You can read his paper on the talk here [PDF], but here are the three factors that determine whether a bump in the road turns into a full-fledged crisis:
  1. Is there a tipping point? That is, some point beyond which decline inevitably leads to fall?
  2. Is governance limited? That is, a central authority that's too weak to coordinate counter-action?
  3. Are there positive feedback effects? That is, is something more likely to happen each time it happens?
The key feature of Taylor's model is that a crisis is unlikely to develop unless all three of these factors are present (in the jargon, they are joint necessary conditions). Take away one (e.g., powerful governance, a lack of tipping point, or lack of feedback) and your "disruption" is unlikely to turn into a crisis.

Bottom Line: Economic theory can provide a useful framework for understanding problems. After the theory, however, you need action to address them.