PROCEEDINGS OF THE IEEE, VOL. 63, NO.

3, MARCH 1975 431

Input-Output Models in Economic and

Environmental Policy Analyses
IVARS GUTMANIS

A b m c t - T h i s paper discussesthe use of input4utput models for the TABLE I

a n a l y s e s of economic growthand resulting environmental, resource aud PROJECTIONSOF INDUSTRIAL AIR POLLUTION[4]
related iswreg The emphasis is o n discussion of a general structureand Generation forSelectedSectom,UnitedStat- 1970 to 1980
Characteristics of the input-output models and on theiruses for policy (in t i l o u u n d . of tons)
analysis. A luge number o f such analyses can be undedaken using
input-output models. These include analysiso f pollution generationby Alrborne Pollutauta
8ource for any specified time period, study ofpollutiongeneration Part. s
o
, BC co wo.
trends under a number of economic assumptions, comparison of alter- Indrutq
native pollution abatement costs, determination of the environmental
and economic effects of dtemative raw m a h i d inputs, andysis of 246. corl mning 0. 0 . 0. 0.
economic and environmental impacts resulting from alternate output
bod 2086. 483. 0. 0. 0.
and/or end-product specifications, and others.
Paper 1U4. 283. 0. 0. 0.
INTRODUCTION ChedCd. 151. 1692. 9. 0. 0.

T HIS PAPER discusses the use of modified input-output

models for the analyses of economic growth and result-
ing environmental and related issues. In a very general
term, this paper sets forth the scope of the effort carried out
Paint

Petrolem refining

S t m e m d clay

Imo m d a t e e l
1045.

2599.

2336.
0. 0.

3555.
201.

0.
8.

1502.

0.

0.
0.

3225.

0.

4375.
0.
0.

0.

0.
under a research contract with the United Nations on the“Im-
lboferroun -tala 257. 6501. 0. 0. 0.
pact of Prospective Environmental Issues and Policies on the
International Development Strategy.”’ =
h
t
r
.t
M 775. 646. 1420. 3386. 1548.

However, the emphasis here is on discussion of a general utilitiw l2335. 29163. 1943. 3792. 7780.
structure and characteristics of the modified input4utput
models and on (with specific examples where possible) their
uses for policy analysis, (see for example [ 1 ] -[ 31 ).

USE OF THE MODIFIED INPUT-OUTPUT MODELS FOR TABLE 11

POLICY ANALYSES RESIDUAL EMISSIONS UNDERVARIOUSPOPULATION
AND ECONOMICGROWTH ASSUMPTIONS [S]
A number of important policy studies have been undertaken
Continuation of the 1970 Percentages of Pollution Abatement by Each
by using either an input-output model modified for environ- Industry and Sector in the United States is Assumed. 1970 and 2000.
mental analyses or by grafting onto the basic model additional (wastes in billion of pounds)

economic analyses. These are discussed in this paper. 2000

w u tU 70 19
E.-& E-&/ a-21 E-&
Trends in Residual Emissions
urberrm WUtea
The model readily calculates the quantity of pollutants gen-
Particuktea 41 59
erated and emitted into the environment by industry sources 56 51 49

for any specified time period. Partial summaries of pollutants w- 89 198 196 181 171
generated and/or emitted for selected economic sectors and/or Oddu of sulfur 132 85 122 108 100
type of pollutants can be derived. Table I, for example, sets cubon WDaodde 467 231 389 370 366
forth projectionsof industrial air pollutionin the United States OddM of li-m 30 58 55 54 51
for the 1970 to 1980 period [ 2 ] . Furthermore, the model can
Wrtcrbornc Wastea
be used to measure pollution generation trends undera number
of economic assumptions (e.g., rate of GNP growth, changes in BOD 219 78 208 201 198

population, changing weights of final demand sectors, etc.) as Swpeaded Solids 840 ll57 1129 1133 ll2O
shown in Table I1 [5I . Thus the model allows for a readily D i u o l d Solids 161 587 542 536 501
available examination of alternative economic assumptions. l l t r n ~ 14 34 31 29 25

pIp.p&rom 7 11 10 10 9

Manuscript received June 7, 1974;revised October 16, 1974.

The author is withtheNationalPlanningAssociation,Washington, y A
a
- CmtlDluCion of curreat poplktion trend# m d h y h pr&tlvity:
D.C. 20009.
The United Nations study is being coordinated by the Centre for 21 A
m- laa p o a l t h t
rads d high productivity:
Development Planning, Projections and Policies of the Department of
Economic and Social Affairs in cooperation with other offices and or- -3/ hg. CmtiDfYtion of c m m t papulation trand. m d h r prodactivity;
ganizations of the United Nations family and with other bodies. The V k.- lams poplktion trmd. d lower productivity.
study, as a whole,w iconsist of a reportby the Secretary General anda
l
l
technical report.
432 PROCEEDINGS OF THE IEEE,MARCH 1975

TABLE 111 intermediate goods and services will also rise. The easiest way
RANKING O F SECrORS OF ECONOMY GENERATINGTHE TEN to compute the overall effectis to observe that, like other
HIGHEST BOD COEFFICIENTS,UNITED STATES 1970 [61
sectors, the residual treatment sector requires some labor and,
(millionpounds of EsJD m e r a t e d per d
o
in output)
therefore, has a characteristic value added by labor. Consider
mu
BmL Sector Galeratad two cases, with and without residuals treatment activities. In
1. Sugar 1268
the first case, we have a value added vector with a nonzeroele-
ment (u2) and nonzero matrix elements A m , A 1 2 , A z 2 , A z l ,
2. k t , Aaiula,and l i o p t o c k Rodruta, Mine. 1135
and A z o , whereas in the second case, by definition, all of these
3. poultry and Eggs 817
terms vanish. Fromthestandard inverted input-output ma-
4. k t Products 834 trix equation, we can compute the equilibrium price vector in
5. miry Farm Rodnet. 823 each case. Generally speaking, prices will be different-and
6. Paper Producct.. lk. 190 high-in the first case (treatment) than in the second case (no
7. Paperborrd k u h n 109
treatment). Combining the natural resource sectors with the
ordinary production sectors, for simplicity, the following equa-
8. lriiyproducct. 6 4
tions hold :
9. Pesticides
md Agricultural BdoL., Other 132

10. lartilizera up)

treatment no p 1 = A ;:ul (2)
treatmentPf=A;:ul +Ai:A12NA21Ai:Ul +A;:AlzNuz
(3)
It is also possible to determine and rank the direct as well as where N is the determinant of matrix A 1 1 .
the indirect pollution generation coefficients fromvarious sec- Thus, we can write a general expression for the “new” price
tors of economy, as is shown in Table I11 [6]. vector p f :
Impact onPrices p f = [l + A;:A12NA21] P1 + A ; : A l z N ~2 (4)
Equations within an input-output model are also provided to
balance the system in value terms and compute shiftsin the price in terms of the old price vector p 1 . Solving for p ; , we obtain
structure, resulting from residuals management activities. To immediately
illustrate how this procedureworks, let us modify the standard
p; =A;U? - A ; ~ A ~ ~ P ~ . (5)
input-output matrix as follows:
I
I
Economic Impact of Increasing Pollutant Control
+
I
I
The cost of marginal unit of pollutant increases rapidly with
7
I the proportion of residuals removed, as shown in Fig. 1 [71.
I
The c o s t s of residuals reduction p2 can be parametrized with
respect to the fraction of pollutant(s)eliminated, as shown
where schematically in Fig. 2. Let 1 be the “level” of pollution re-
maining after treatment. The pointZ = 1 represents thelevel of
waste discharge with no treatment atall. The rapid increase in
c o s t s as we approach the Zero effluent reflects the phenomenon
of decreasing returns, as greater and greater effort can, in prin-
The raw materials and manufactured goods price indices re- ciple, be determined for each pollutant in each industry-or
quire no explanation, so the interpretation of XO,X I , and Y1 one curve may be assumed across theboard. Given sucha
are clear and straightforward. However, PZ is not a price in curve, or set of curves, the impact of regulatory policies may
the ordinary sense, although the productX 2 = P ~ X represents
Z be assumed. Thus direct and indirect costs ofachieving a given
the dollar “output” of the pollution control “industry,” thus reduction in residuals discharge for the economy as a whole
Pz can be interpreted as thecost of treatment to thelevel such may be computed.
as that of the gross residual output x2 only an amount y z is
actually discharged to the environment. Impact of “Effluent Tax”
In its usual dimensionless form, the rows of interindustry The impact of a hypothetical “effluent tax” penaltycan also
coefficients corresponding to the residuals treatment sector(s), be explored using this framework. Fig. 3 illustrates the costs
namely A m , A z,lA z z represent “sales of pollution controlser- imposed on industry by two different tax rates. Simple linear
vices to other sectors, or to the pollution control sector itself. functions are presumed for simplicity, so that as the level of
In more ordinary language, these are just the c o s t s which in- discharge doubles (up to its maximum) the tax paid rises in
dustry must bear to control residuals. Similarly, the columns proportion.
of interindustrycoefficientscorresponding to the residuals Total c o s t s to industry attributable to pollution now consist
control sector($, namelyA m , A 1 2 , A n represent “purchases” of the sum of control costs plus tax payable. Fig. 4, shows how
by the residual treatment sector from the other sectors. (Ob- this would vary with the levelof control. Notice that each
viously the costs of pollution treatment for some sectors result curve has a minimum point, which is presumably where indus-
in income for othersectors.) try would chooseto operate, other thingsequal. The minimum
Any shift in c o s t s wi tend to have an effect on prices. The may be quite sensitive to the tax rate, up to a point, but
l as
direct cost of residuals control services is not the whole story. higher and higher taxes are imposed, the leastcost operating
Since manyindustriesareaffected, the c o s t s of purchased point does not shift proportionately to the left. In fact, it is
GUTMANIS: INPUT-OUTPUT MODELS 433

T U 1
Cost
Centsper
s
1000 Gallons
of WtRnter
Treated

Fig. 3. Possible effluent tax schedules.

A-
1Or.d
cQ4t
5

l$* 4 4
Fig. 4 . Combinations of treatment and taxation.

EQD P
aDd Percent

Fig. 1. Incremental cost (includes annuahation capitaland 0 & M

costs; 6-percent rate 20 years) of removing biological oxygen demand
(BOD) malt plant annual capacity 3 000 000 bushels of barley steeped
[81*

Trea-t
Cost
s
10 I l / l I I I I

1955 1950 1945 1985 19801960

1975 1910 1965

Fig. 5 . Agglomerated iron ore consumption as percent of total agglom-

I- erate by designated type, United States, 1945-1985 [ 11.
I I
I 1. -1
0.5 Resid&
Leprl
Fig. 2. Typical treatment cost curve. Faced with increasingly stringent residual control standards,
some industries cannot use endaf-the-line abatement because
of technological or cost factors. In these situations, many in-
clear that, for the cost curve shown in Fig. 4 a tax such as A dustries have developed production technologies which pro-
will achieve a net reduction in pollution discharges of about ducefewer residuals. Forexample,theoldermercury cell
50 percent (to I* = O S ) , while a 90-percent reduction would production process of caustic soda results in significant genera-
require us to increase the tax rateby a factor of roughly 15 : 1 tion of mercury wastes; the newer diaphragm technology for
as compared to A . caustic soda production does away withmercury residuals
entirely [ 8 1 .
Production, Input,and Output Alternatives A more complex example of the impact of alternative tech-
Input-output models can also be used with additional analy- nologies on industrial pollution abatement costs can be seen in
sis t o study the impact on pollution generation or resource re- production of iron [ 9 ] . Iron is produced by either the sinter-
quirements of production(technology),inputandoutput ing or pelletizing method, as shown in Fig. 5. The use of pel-
alternatives. letizing technology has increased rapidly since its introduction
in the early 1950's and by 1985is expected to be the dominant
Technology Alternatives process. When estimating pollution generation in the steel in-
Technological changes in production processes can influence dustry, it is important to realize that pelletizing generates less
the very generation of residuals. Among the determinants of pollutants and produces superior iron.
thegeneration of residuals, productiontechnology changes Consequently, pelletizing results in fewer wastes, particles,
seem to be very important. and less process waste water, all of which reduce the pollution
434 PROCEEDINGS OF THE IEEE, MARCH 1975

1007. 1mr
1 1 I

t 1 1
I

I I I I I I I I I
a
I hlflt. I ! I I I I I I
20

10 10 k
1 5

Fig. 6. Steelproduction as percent of totalproduction by designated Fig. 7. Wood pulpproduction a8 percent of total wood pulpproduc-
process,
United
States, 1945-1985 [ I ] . tion by designated
process,
United
States, 1945-1985 [ 1 1 .

abatement costs associated with given levels ofsteel production. TABLE IV

The impact of alternative technologies on the resource re- POLLUTANTSFROMTHE KRAFT AND MAGNEFITE (SULFITE)
PROCESES I N TISSUEPAPERPRODUCTION[lo]
quirements as well as on pollution generation can be seen in
(in ernmda per ton of tu-)
the alternatives of steel production.
The graph of relative shares of steel production by technolo- midrul. Kraft TeckawlogL Sulfite TEC~DO~OQ

gies in the United States,Fig. 6, shows the open-hearth process a

rbo
rme
declining as the newer basic oxygen method has been intro- Chlorine1 . 1 1.8
duced.Oneconsequence has beena decline in demandfor Sulfur dioxide 5.6 26 .O
scrap vis-$-vis virgin ore. The open-hearthfurnacepresently
S u l f i d u and hydrosen 26 .O 0
consumes 42-percent scrap, compared t o 29 percent for the
Particulates 62.0 28.0
basic oxygen process. The electric furnace process utilizes 98-
percent scrap input.
Unfortunately, becauseof the technological substitution
507.0 93.0
noted, total scrap input t o steel furnaces has declined from 48
percent in 1947-1953 to 43 percent in the 1964-1968 period. 118.5 113.1

Moreover, projecting ahead t o 1985, the relative shares of the

three processes, it appears that the steel industry's capacity for
scrap usewill continue to erode slowly as the open-hearth
method declines further. While electricfurnacesare,in es-
sence, scrap melting furnaces, their share of production is ex-
pected to increase only moderately, to perhaps 25 percent of
the total industry capacity.
Even as scrap consumption declines, the available supply of
scrapshould rise. Between 65 and 85 percent of steelcon-
sumption is ultimately recoverable as scrap, but actual scrap
recovery in 1967 was only 43 percent. Steel products have an
average life of about 20 years, so that present scrap supply re-
flects steel output one to three decades ago. As steel produc-
tion rose rapidly in the past 20 years, future scrap availability
canbe expected to increase. The net result of rising supply
and declining recycling capacity means that unless the trend is
reversed by public policy, a markedly lower percentage of fu-
ture scrap will be utilized, great potential pollution abatement
benefits will fail to be realized, and the scrap component of
solid wastes will grow. Here is an example of industrial tech-
nology changes running counter to environmental goals.
Two additional examples of significant impact on pollution
generation resulting from alternate technologies can beseen in
the pulp and paper manufacturing industry [ 101. In the case
of wood pulp production, the use of the sulfate or kraft pro-
cess of producing wood pulp, whichincreasingly dominates the
sulfite and other methods as shownin Fig. 7, reduces the more
common waterborne residuals (and, therefore, results in lower
treatment costs) albeit at a cost of generating other residuals.
The kraft processbrings a major reduction of waterborne dis-
Solid W - t u
w c aud h r g a a i c =lid. 70.0 163.0
solved solids (DS),see Table IV, which are difficult and costly
to treat [ 101. Moreover, it results in large reductions in the
generation of solid wastes, sulfur dioxide, and the waste-water
load.However, it increases particulates, and creates odorous
sulfides and chlorine gas.
This example illustrates well the difficulties associated with
designing nationalpollution control policies. From astrict
waste-water management point of view, the kraft technology is
preferable to thesulfite process,since waterborne residuals
andwaste-water controlcostsare significantly lower. How-
ever, from a strict air pollution management point of view, the
sulfite process is preferable. Since one cannot escape the laws
of conservation of energy and mass, a broad'residuals manage-
ment viewpoint must be taken. To develop policies for resid-
uals control in the tissue paper industry, one must not only
calculate the costs and benefits associated with various types
of control of one type of residual and one environmental me-
dium, but also the benefits and costs of various types of con-
trol for various types of residuals and various environmental
media.
The production of paper provides another example of the
effect that different production technology canhave on the
GUTMANIS: INPUT-OUTPUT MODELS 435

generation of residuals and residuals control costs [ 111. Cur- TABLE V

rently,eitherthedominant wet-forming process or thedry- NET RESIDUALSMANAGEMENT COSTS PER TON O F OUTPUT,
INTEGRATED KRAFT MILL PRODUCING 5 0 0 TON PER DAY OF
forming process canbeused in production. The dry-forming TISSUEPAPER [I41
process uses wood pulp but does not require water as a carrier
P.C. T i 4: Bleached Tisme Paper
and therefore eliminates the need for large quantities of water
that are required for the wet-forming process. Therefore, dry- gpc of Tru-tlJ
LEVEL OF DISCEABGE S U H M B D S
forming process can eliminate or considerably reduce the high I I1 111
costs of treating the large volume of process waste water used Gueoua r e dm
duda
i fli u t i o a . 0.16
Sfton 0.59 1.66
Liquid remiddm wdification,
3.07
Sltcn 4.09 6.76
in the wet-forming process. Solid rasimul, disposal, Slton 0.38 0.38 0.38
Comprehensive estimates of industrialwaterborne residual 3.61 T o t a l , Sltcn 5.06 8.80
control costs must take into account the effects which may be
P.C. n 31: Mluched Tissue Paper
realized bythe use of alternative production technologies.
Furthermore, any effort to project industrial water pollution rrp. of TrUtmtlJ
L,EVKL 01 DISCBARGE SUKMBDS
abatement costs must not only take into account the current I I1 111
availability of alternate production technologies, butalso needs Guwm Wid& w d i f i u t i o n , Sltm 0.12 0.46 0.83
Liquid m i d & w d i f i u t i o n . Sfton 0.40 0.10 0.72
to recognize the potential for changes in the pertinent tech- Solid ruidualm djspul, 0.33Sftm 0.33 0.33
nologies over time in order to estimate futureabatement costs
Total. $1- 0.55 1.19 1 .88
consistent withproduction technologies which will then be
possible [ 121 .
Similar to the assessment of entire production technologies, m u :

it is also possible to identify residual generating subprocesses, 1. &mu are in 1970 dollarm and are baaed on amtintea of operatingIrbor.
&
- ea labor and ~ppliaa,p m r and material requir-u, 12.51 d
and to evaluate alternatives for that particular activity which chum m rtivted u
p- l m a a e m t , ud .n credited with c hd d
will generate fewer residuals or result in reduced pollution ncov8riu a t mid nrbt p r i m . O p c r a t h 350 d v a per ~ u w ru -4.

abatement costs. Because there is a relatively wide latitude for 2. ma comu of m y Hconhry - l i d remiduals gmerated in liquid a d
guacam r u i U m d i f i u t i m , i . e . . mludm., are indudad in the liquid
selectivity, subprocess changes can be directed specifically and pww m
ra
w wdifiution c a t s .
toward easing specific pollution loads, and minimizing specific 3. L3VU I i n d i u t e a a particulate discharge of 30 lba. of particulate
waste control expenditures. per ton of t i r a u e paper.

Several examples illustrate the possibilities for such reduc-
tion. In the canned andfrozenfoods industry, a shift from
water conveying to dry conveying suction systems, reduces
residual water flows and BOD and DS;similar results, with
considerably reduced residual water loads, can be obtained
from dry caustic or cryogenic peeling, and blanching with hot
air instead of steamor hot water. However, these new sub-
processes do tend to be more energy intensive. A careful eval-
uation of tradeoffs and benefits and costs must be conducted
if rational policies are to be made.
In the production of plastic materials and polyvinyl chloride
(PVC) resins, switching to the bulk method of producing PVC
resin can considerably reduce waste water-BOD, suspended
solids (SS), and DS. Since the use of each of these (or similar)
production subprocesses will result in a reduction in water pol-
lution control costs, estimation of pollution control costsmust
include such alternatives for production subprocesses, and, as
in the case of changing technologies, projected future abate-
ment costs must also reflect the future use of such alternatives.
Alternatives in the Materials and Fuels
The type and especially the quality of material inputs used
in production often have a pronounced effect on the quantity
of residuals generated and therefore residual treatment costs.
In fruit-processing operations,the .increasing conformity of
fruits (inputs) in size and ripeness has substantially decreased
wastage. The improved size uniformityof harvestedpine-
apples, for example, has reduced fruit wastage by approxi-
mately 40 percent over the last 30 years [ 131. Examples of
changes in the materials used which adversely affect the envi-
ronment in general and water pollution control costs in par-
ticular can be found in many studies of mineral supply and
availability. These reports project a considerable decline in the
quality of ores to be used which will increase residuals gener-
ated per unit of ore processed as well as the costs of pollution
abatement.
4. LEVU I1 Weate#a particulate dimcharge of 8 lbm. of particulate
per tm of timaw? paper.
5. LEVU I11 indicates a particulate&chargeof 4 lbm. of particulate
per ton of timaw? paper.
The best example of this can be seen in the changing use of
fuels brought aboutbythecurrent energy problem, which
results in increasing reliance on coal in place of gas and/or oil.
Alternatives in End Products e o d u c e d
The characteristics of end products also have a substantial ef-
fect on residuals generation and on the costs of their control.
In food manufacturing, for example, there has been a trend
toward an increasing number and variety of end products. Two
decades ago, theonly peach product that was canned was
halved peaches: Today peach products also include peach pie
pieces, peach concentrate, peach nectar, and peach irregulars.
As a result, theyield per case has risen from 40 cases per ton of
peaches to over 5 5 cases in the last 20 years. The result has
been substantial decreases in BOD and SS per ton of raw mate-
rial processed, with a corresponding decrease in control costs
for this part of the industry [ 131 .
An example of the opposite trend, where changes in the end
products result in increased residual loads and control costs,
can be illustrated by the trend toward paper productswith
higher brightness, including pastelalored products. Due to
the greater degree of pulp bleaching required for high bright-
ness paper, the residuals generated are greater. For white and
pastelalored tissues, the generation of dissolved solids is
double from what it would be if tissue was not colored. By
comparison, em-tissue in a brown color, the color of the kraft
process pulp, without bleaching, generates only 10 percent as
much dissolvedsolids.Eco-tissuemayalso be produced en-
tirely from waste paper. The differences in the net residuals
cost associated with bleached and unbleached tissue paper
have been calculated and are displayed in Table V. The costs
436 PROCEEDINGS OF THE IEEE, MARCH 1975

TABLE VI
TYPESOF SUBSTITUTION
Type Substitutor Substitutee -le Effect on 1-0 IlatrFxElements
I Output of ithsec- Output of j" sec- Synthetic for rubber in Elernt a h increasea
to as input to tor an input to tires, plastic for steel El-t a,* decreases
md sector nth sector in auto industry (a, + ajl -'constant)
I1 Output of I* sec- Output of jth s e e Use of telephone replac- All e l m t s in ith r w increase
tor as input to
all other sectom
tor M input to all
other sectors
ing use of postal eelvice
-
All elements in jth r w decrease
(ah + constant for a l l )
I11 Output of I* sec- Output of j*, kth, Plastic in building Elenent a b increases
tor a0 input to la.. .sectors as %, ab.. .decreaeecl
ma sector inplts to I*
sector
industry replacing ply-
w o
od
, r e a l , tile,
plater,etc.
Elclent a,.
(a, + a., + + aw constant) ..?-
IV Output of ithm e c - Output of I*, Ira, Air trapaport replacing All elaents in I* LW increase
tor M input to
all other sectors
I&. ..sectors as
inputs to all
rdl, tm&, ship All e l e r n t s in j*. Ira, I*.
r w a decrease
..
other sectom ,A( ..
+ a,= + , a h . = conatant f o r
all)

-!-
Output of iths e c Labor UI input to Uachluery replacing Elacnt % increasea
tor ae input to sector Ith labor for agriculture
sector
Outprt of it" s a c AII other input.
tor am input to
to all other mec-
all other eectom tom (mince labor
CmMt be replaced
for uimle ecmm)
:Ia., - constant for'all o

of residuals discharge control are roughly five times ashigh for TABLE VI1
SUMMARY OF POLLUTION ABATEMENTC O T S IN THE
the bleached tissue paper. Bleaching is now usedin over 50 UNITEDSTATES, 1970-2000 [ I S ]
percent of the wood pulp industry and assuming continuation
( b i l l i o e of 1970 $)
of present trends, will rise to 60-70 percent in 1985, creating
higher pollutant loads and resulting in much higher abatement P0Uut.nt2000 1980 -
1970 - -
costs [ 141. Airborne 0.45 14.u) 21.00
Allof the alternatives discussed above cause shiftsin the 37.66 Waterborne
19.91 2.82
interindustry coefficients, within the input-output model. We Solid Waste
18.77 10.61 5.18
are thus concerned with changes which are reflected in altered
TO t A l 8.45 45.00 77.43
interindustryrelationships, that is to say, changes in the
characteristic pattern of sources of purchased inputs to each m
PelTaIt of 2.97 2.24 1.05
industry from others (or, equivalently, changes in the charac-
teristic pattern of sales outputs from each industryto others).
Within this relatively narrow context, it is possible to define all
relevant interindustry technologicalchanges as substitutions of mity with the projections. This is essentially a matter of book-
one purchased input (including labor) for another. keeping and computer programming andneed not be discussed
Substitutions may be of several basic types, as indicated in here, noris it feasible t o indicate in thisbrief paper the detailed
Table VI which follows, listed in accordance with their effect methodologies whichare used to incorporate these alternatives
on the input-output matrix. It is important to keep in mind of production technologies inputs and end-products into an
that substitutions of types I, 111, and V result in changing only input-output model. However, this has beenundertakenin
one or two (or a few) matrix elements, whereas types 11, IV, the past and does not present undue methodological problems.
and VI involve wholesale changes to entire rows or columns.
The latter should, in principle, involve separate consideration Pollution Abatement Cost Estimates
of each elementalong a row or column,reflecting the fact that The model can estimate pollution abatement costs for any
substitutions tend to occur at quite different rates in different given sector of economy andspecified level of residual removal
industries. All suchsubstitutions can be successfully incor- for any time period required. Furthermore it can provide such
porated in the input-output model. estimates under a number of assumptions such as the scale of
In general terms, our approach is first to identify a number waste treatment plants, and the type of treatment processes
of specific technological trends which can be expressed as sub- used. Finally it can estimate treatment costs under specified
stitutions, fitting one of the classifications in Table VI. The alternatives of production technologies, inputsandoutputs.
next logical step is to translate such trends into terms used in Cost estimation, shown in Table VII, for example, which sets
the input-output model, i.e., sector inputs and outputs and forth projected pollution abatement costs for theUnited States
ratios, and to estimate historical rates of change of the vari- for the 1970 to 2000 period, were obtained using an input-
ables. This is straightforward inprinciple, but complicated and output [ 15 I .
tricky in practice. The thirdlogical step is to project the future
time-history of the substitution process. This forecasting step CONCLUSIONS
involves a separate model of technological diffusion which re- Input-output modelscontainmorestructuralinformation
quires explicit detailed justification. The fourth and final step than most other models and satisfy a number of essential con-
is to modify the existing input4utput coefficients in confor- servation laws andidentities, including general interdepen-
GUTMANIS: INPUT-OUTPUT MODELS
dency. They explicitly reflect industry disaggregation, though
some spurious effects nevertheless result from excessive aggre-
gation of different producers and commodities within sectors,
while others occur because of artificial constraints on substitu-
tion between sectors. While input-output models implicitly
assume static productiontechnology, deterministictechnologi-
cal projections can be exogenously incorporated.
The major advantage of the modified input-output models
from the standpoint of environmental analysis is their ability
to deal with economic consequences of policy changes imple-
mented at the sectoral level. Residuals and residuals treatment
can be incorporated explicitly both in physical and in eco-
nomic (cost/price) terms. Environmental policies that can be
tested at the industry level include waste discharge limitations
(standards), output limitations (rationing), cost increases for
residuals treatmentor as penalties (effluenttaxes),or even
subsidies. Both direct and indirect price and waste discharge
consequences of assumedpoliciescanbe computed. Policies
as regards particular residuals-e.g., sulfur dioxide-can also be
tested across the board, with relative direct and indirect efflu-
ent cost and price consequences for various sectors calculated
and compared.
The major weakness is their inability to deal with transient
effectssuch as short-term relationships between investment
and unutilized capacity.Inthecontext of environmental
analysis, for instance,alternative strategies available to industry
(including, but not k i t e d to, processshange, product change,
relocation, recycling, etc.)cannot be reflected in the model
without additional analytical effort; cost minimizing and regu-
latory strategies are also difficult to analyze. In general, how-
ever, modified input-output models are highly useful tools for
undertaking environmental policy analyses.
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