The Role of Model Contracts in the Emergence of Industrial Symbiosis Networks

by Jessica Bass

The use of one manufacturer’s discarded materials as inputs along the line of another manufacturing process holds strong potential for helping maximize efficient environmental, economic, and social aspects of resource use. This practice, known as Industrial Symbiosis (IS), is an emerging area of study within the field of Industrial Ecology, focused upon encouraging cooperation and exchange and resource recovery among businesses. These efforts to facilitate mutually beneficial and sustainable trade can be seen both in individual firm-to-firm exchange, and at the scale of Industrial Symbiosis Networks (ISNs), involving the interconnection of multiple relationships among firms. The potential improvements in efficiency stemming from ISNs are typically economically advantageous for businesses, yet very little research has previously been conducted to cultivate the creation and maintenance of these networks. Albino et al. (2015) seek to analyze the different factors that disrupt the formation of ISNs, and to design a model contract that will offer the greatest support for ISNs in in the presence of these challenges.

Industrial Symbiosis Networks typically emerge over time from the spontaneous decisions of interacting firms. While ISNs could potentially be formed by a centralized decision-maker, the existing literature suggests that self-organized networks, developed through firms’ continual efforts to increase their fitness as Complex Adaptive Systems, are significantly more resilient.   Each of the relationships they build has unique characteristics based upon the firms’ needs, however two factors within the connections they build stand out in light of their determinant roles influencing economic efficiency. First, the material flow network incorporates consideration of production capacity and consumer demand, alongside the nature and distribution of cooperative benefits. Second is the creation of social ties, developed through proximity in location, similarities in methods and goals, and path dependency, that may offer increased transparency and trust. Yet, sometimes the extent of firms’ interests and needs does not match, leading to a misalignment disincentive that risks the stability of cooperative relationships. Contracts, focused on the relative value of transfer payments, hold potential to serve as one means of helping ensure the alignment of the interests of individual firms. In order to support the formation of ISNs as facilitators of economic, environmental, and social efficiency, Albino et al. sought to create a model contract capable of maximizing the number of industrially symbiotic relationships while ensuring that both sides may benefit, and supporting Industrial Symbiotic Networks as a whole.

The test of a sample contract’s ability to increase firms’ willingness to risk collaborative efforts, and the longevity of the IS relationships developed, was performed in model simulations that allowed relationships to develop naturally between two sample industries, with and without the contract. The extents of environmental dynamicity, turbulence, and trust, were also varied within each, allowing consideration of their respective potential to influence the likelihood of establishing an ISN. Two robust case studies simulating real relationships revealed a clear increase in the number of stable IS relationships formed, and an even further proportion of increase in the creation of ISNs for those in the presence of a contract mechanism, relative to those without. Further, the greatest benefits of the contracts could be directly attributed to the formation of IS relationships among firms with low uncertainty in mutual trust, but high potential for turbulence in the external environment.

While the results discussed in this research are specific to two particular case studies, the methodology and relationships developed in Albino et al.’s work are expected to hold true with respect to the broader potential for contracts to influence the formation of ISNs. The methods of evaluation within this research may inform policymakers of ways to cultivate and support ISNs and their potential to improve efficiency, all-around.

Albino, Vito, Fraccascia, Luca, Gianocaorro, Ilaria, 2015. Exploring the role of contracts to support the emergence of self-organized industrial symbiosis networks: an agent-based simulation study. Journal of Cleaner Production, Journal of Cleaner Production, 112, 4353–4366.

http://www.sciencedirect.com/science/article/pii/S0959652615008008

 

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