Testing design of a social innovation: the environmental mitigation banking system

Abstract

This paper attempts to evaluate the performance of an environmental mitigation banking system operating under different regulatory pricing and subsidization policies using system dynamics modeling and computer simulation. Pricing of credits is an important aspect of the banking system and complex engineering methods connecting cost to price and market have been proposed as pricing criteria. Also, subsidization of the mitigation system by the government is often advocated by environmental groups. The analysis of this paper suggests that the market is able to yield an optimal price with or without inputs from engineering methods connecting price to cost. Also, the system operates best without yielding overshoot in infrastructure development when operated without any subsidies. The experimental process used to test the efficacy of the mitigation banking system is seen in general to be important to the design of social innovations direly needed for the smooth functioning of the modern day complex societal system.