Input-Output Economics and Material Flows

This paper argues that resources constitute the fundamental area of overlap between the interests of input-output economists and industrial ecologists. Three misconceptions about input-output economics obscure this fact: the frequent failure to utilize combined quantity and price input-output models, treatment of value-added as a monetary concept only, and the belief that all input-output models assume a linear relationship between output and final deliveries. The paper dispels these misconceptions by describing a quantity input-output model with resources measured in physical units and the corresponding price model with both resource prices and product prices. The model is illustrated with a numerical example of a hypothetical economy and analysis of a scenario where that economy is subsequently obliged to extract a lower grade of ore. Then three other input-output models are presented: a model closed for household consumption, a dynamic model, and a model of the world economy. Unlike the basic model, the last two are non-linear in final deliveries and in factor prices while also retaining the desirable features of the basic model.