System Thinking

A04 Assignment : CLD Cases

Hasful Anwar Fathoni

NPM : 2306290601

1. Fish Bank Model

Below you find a description of a very simple fisheries model, also known as the basic Fish
Banks model. The two main variables in a fisheries model are fish and ships. Suppose the
number of fish only increases through the fish hatch rate and decreases both through the fish
death rate and the total catch per year. Suppose that the fish hatch rate equals the fish times
the hatch fraction. The fish death rate is equal to the death fraction times the fish.
The death fraction is a function of the carrying capacity and the number of Fish. The total
catch per year depends on the number of ships and the annual catch per ship which is a
function of the fish density. The density is defined as the amount of fish in the fishing area
divided by the area.
Suppose that the number of Ships increases via the ship building rate which is a function of
the investment costs per ship, annual profits and fraction reinvested. The annual profits are
calculated as the revenues minus the costs. Assume that the revenues equal the total catch
per year times the fish price and that the costs equal the unit ship operating costs times the
number of ships.
1. Mak e a CLD of this model. What can be learned from it?
2. In case of undesirable conclusions, change the diagrams to turn undesirable into
desirable.

Variable & Constant Identification of Fish Bank Models:

Variable Constant
Number of fish Carrying capacity
Fish hatch rate Ship operating costs
Fish death rate Fishing area
Total catch per year
Hatch fraction
Death fraction
Revenues
Cost
Number of ships
Annual catch per ship
Fish density
Ship building rate
Investment costs per ship
Annual profits
 Fraction reinvested
Fish prices

Variable Linkage:
Number of fish + Fish hatch rate
Number of fish - Fish death rate
Number of fish + Total catch per year
Number of fish + Fish density
Fish hatch rate + Hatch fraction
Fish death rate + Death fraction
Total catch per year + Number of ships
Total catch per year + Fish density
Area + Fish density
Number of ships + Ship building rate
Annual profits + Revenue
Revenue + Total catch per year
Costs + Number of ships
Costs - Annual profit
Annual profits + Ships building rate
Fish prices + Revenues
Ships operational cost + Costs

CLD Models
What can be learned from it?
The purpose of this model is supposed to maximize the annual profits. In this CLD we
know that the annual profit is obtained by the number of fish caught and the price of the
fish itself. However, fish catch also affects the number of fish populations, fish mortality,
fish density in one area and also the number of ships that catch fish.
There will be a trade off: If you continue to catch fish without adding ships, the total catch
will be the same every year, so there is no need to pay for additional ships, but if you add
ships massively it will cause the fish population to decrease and even run out and also the
cost of building ships is not cheap.
Every loop in this CLD are :
 R1 = Fish hatch loop
 R2 = Cash flow loop
 B1 = Fish death loop
 B2 = Total catch fish per year loop
 B3 = Fish catch loop
 B4 = Ship building loop

To increase the annual profit, we need to emphasize the variables that support the loop in
the CLD, the first thing to do is that we can increase the hatching rate of fish, thus the fish
population will increase. Then we also need to increase the price of fish and reduce ship
operating costs by only catching fish that are already large and not by not traveling too far
to save on operational costs. On the other hand, we have to reduce the area in order to
minimize the mobility of ships and the density of fish can also be large. And also the need
to increase carrying capacity.
2. Housing Policies
Real estate demand in densely populated urban areas with sufficient land to extend is often
rather price sensitive: declining property prices for instance caused by relative oversupply,
i.e. real supply exceeding real estate demand, results in rapid demand rises. Construction
companies often initiate new projects based on the demand for properties. Increased demand
leads to new projects being initiated. Real estate construction projects are often completed
with relatively long delays of about 2-3 years. Many construction companies tend to operate
in these areas. And they are mostly unaware or do not keep track of construction projects in:
1. Make a CLD of this description.
2. What kind of dynamics would you expect to see in property prices?
3. What would be an adequate strategy of a smart construction company?

Variable & Constant Identification of Housing Policies Models:

Variable Constant
Real estate supply Area available
Real estate demand
Property price
Sufficient land
New construction projects

Variable Linkage:
Sufficient land - Property price
Property price - Real estate demand
Real estate demand - Sufficient land
Real estate demand + Real estate supply
Real estate supply + New construction projects
New construction projects - Sufficient land

CLD Models

New Area
construction available
+
projects
-
Sufficient +
- land
B2
Real estate B1 -
supply Supply &
demand effect Property
+ Price
price
Sensivity
Real estate -
demand
Kind of dynamics would you expect to see in property prices:
Property price is more influenced by demand, so if the demand increases it will cause the
property price to increase as well. Where demand is determined by the amount of real
supply available. Meanwhile, the available real supply is strongly influenced by the new
house project. Property price is high if:
 Sufficient land is low (limit), which causes by:
 High supply, which causes by:
 High demand, which firstly causes by low property price, which priory caused
by:
 High Sufficient Land (started point)
(following the balancing loop pattern)

Adequate strategy of smart construction company.

The recommended strategy for construction companies is to keep property prices stable
by meeting supply based on demand and internalized the land sufficiency as their limit.
 Support the government’s policy for the land sufficient sustainability.
 Study new urbanizes (area available) location for new potential project.
3. Traditional Bank Run
A traditional bank run starts when (correct or incorrect) information about potential
problems at a bank leads to fear of a bank failure. More fear leads to a higher tendency to
withdraw personal savings. An increase of withdrawals leads to a decrease of the perceived
solvency of the bank which leads to more fear of a bank failure. An increase of withdrawals
also leads to a decrease of liquid bank reserves and hence to a lower liquidity of the bank.
Banks then need to turn more and more illiquid assets into liquid assets (money) to have
sufficient liquid assets to pay for (future) withdrawals. Due to the speed required to liquidate
illiquid assets, huge losses are often made, resulting in a reduction of the solvency of the
bank. The lower the solvency of the bank, the lower the perceived solvency of the bank,
which leads to more fear of a bank failure. Weak or uncertain economic conditions result in
more fear and lower perceived solvency.
1. Make a causal loop diagram of this description. This causal loop diagram should
be similar to the ones described in (Richardson 1991; MacDonald 2002). How
many feedback loops are there? What is their polarity?
2. What are the possible systems behaviors suggested by this CLD?

Variable & Constant Identification of Traditional Bank Run Models:

Variable Constant
Withdraw personal saving
Bank’s fear of a failure
Bank’s perceived solvency
Bank’s liquidity policy
Bank’s solvency
Bank’s losses
Uncertain economic condition

Variable Linkage:
Withdraw personal saving + Bank’s liquidity policy
Bank’s liquidity policy + Bank’s losses
Bank’s losses - Bank’s solvency
Bank’s solvency + Bank’s perceived solvency
Withdraw personal saving - Bank’s perceived solvency
Bank’s perceived solvency - Bank’s fear of a failure
Bank’s fear of a failure + Withdraw personal saving
Uncertain economic condition + Bank’s fear of a failure
Uncertain economic condition - Bank’s perceived solvency
 CLD Models
Withdraw +
+ personal
saving
Bank’s B1
liquidity policy Bank’s fear
+
Withdraw of a failure
-
policy
- Bank’s
perceived
R1 solvency
+ -
Liquidity
policy
+ Bank’s
losses Uncertain
economic
condition
- Bank’s
solvency

There are 2 feedback loops:

 R1 = Liquidity policy
 B1 = Withdraw policy

The polarity of R1 in the loop is a reinforcing loop.

Possible behavior in liqudity policy loop (R1) is exponential growth.
Liquidity policy will be increased if perceived solvency of the bank is decreased. On the other
hand, the tendency to withdraw personal savings is increasing. Thus, fear of bank failure will
increase if uncertain economic conditions are increased.

The polarity of B1 in the loop is also a reinforcing loop.

Possible behavior in withdraw policy loop (B1) is exponential growth.
When the solvency of the bank decreases, it will cause the perception of solvency to decrease,
which then causes the fear of bank failure to increase.

What system behavior suggested by the CLD?

The system tend to solve the symtoms, not the problem. Especially at the time when liquidity
policy keep being implemented.
The bank need to focus on the fundamental problem that create more stable monetery condition,
such as using prediction and creating safety net for losses. Or the unintended consequences
(fear) will keep coming.
4. Energy Transitions
 Energy Transitions are dynamically complex: they are governed by many feedback
effects and long delays. Energy transitions are also deeply uncertain: major uncertainties
–related to individuals, particular technologies, the entire system, and hence for
policy/decision makers in the energy field–are omnipresent. Energy technologies face
many uncertainties and need to overcome many hurdles, even before becoming
commercially viable and entering the energy technologies battlefield.
 One of these hurdles is the so-called ‘valley of death’. That is, quite often, entrepreneurs
and technology developers bring a new technology to the pre-commercial stage, but due
to a lack of investments, it does not survive the phase between (subsidized)
entrepreneurial technology development and large-scale commercial take-off in which
subsidies are (often) forbidden. It is hard to predict which promising technologies will
actually make it, and hence, which might possibly become the technologies of the future.
 Many self-reinforcing uncertainties influence perceived certainty related to each new
technology. The lower the perceived certainty, the higher the perceived risk and the lower
the entrepreneurial willingness to acquire knowledge/experiment/lobby/. . . in order to
bring a technology to the point where it would be considered a good investment.
Resources for actions to reduce uncertainty may actually help to take this hurdle and may
lead to more perceived certainty and raise perceptions about the potential success of the
technology. This in turn reinforces (intrinsic) entrepreneurial motivation, resulting in
more willingness to act. A reduction of the perceived risk and an increase of the
entrepreneurial motivation are the preconditions to further the state of development and
increase the willingness to invest of entrepreneurs and risk-taking energy companies,
which in turn leads to more real investments, contributing to the success of the
technology, reinforcing the willingness to invest, etc.

1. Make a CLD of the pre-battlefield struggle. How many loops are there? What is
their polarity? What would be appropriate names?
2. What policy recommendations could be derived from this CLD?

Variable & Constant Identification of Energy Transition Models:

Variable Constant
Perceived certainty
Perceived risk
Entrepreneurial willingness
Entrepreneurial motivation
State of development
Investment
Actions
Uncertainty
Perceived of potential success
Willingness to act
 Willingness to invest
Success of technology

Variable Linkage:
Perceived certainty + Perceived risk
Perceived certainty - Entrepreneurial willingness
Perceived risk - State of development
Entrepreneurial willingness + Investment
Actions + Perceived certainty
Actions - Uncertainty
Actions + Perceived of potential success
Uncertainty - Perceived certainty
Perceived of potential success + Entrepreneurial motivation
Entrepreneurial motivation + State of development
Entrepreneurial motivation + Willingness to act
Willingness to act + Actions
State of development + Willingness to invest
Willingness to invest + Investment
Investment + Success of technology
Success of technology + Perceived certainty
Success of technology + Willingness to invest

CLD Models
In this case, we have 4 loops and all of them are reinforcing loops.
Every loop in this CLD are :
 R1 = Entrepreneurial motivation loop
 R2 = State development loop
 R3 = Investment loop
 R4 = Entrepreneurial willingness loop

The policy suggested is to decrease uncertainty. When uncertainty decreases, it will impact
another variable because one variable reinforces another variable. Policy makers can also
provide subsidized funds for investment to help entrepreneurs and technology developers,
so they can survive in the phase between (subsidized) technology development and the
large-scale commercial take-off phase, because in this phase subsidies are (often)
forbidden.