The IO Model of a Simple Economy Without Fossil Fuel

Abstract

This chapter delves into the assumptions and concepts of input-output analysis (IO), including input coefficients, the Leontief inverse, the Leontief quantity model, and productive conditions. It begins with a simple one-sector model centered around the production of a single staple and gradually expands to a two-sector model that incorporates livestock production. Environmental extensions of IO analysis are explored, such as GHG emissions, water and land footprints, waste generation, and recycling, including Waste Input-Output analysis (WIO), with numerical examples based on real data. The chapter focuses on an economy that operates without fossil fuels, relying solely on human muscle power as the energy source for production. GHG emissions primarily arise from anaerobic decomposition in organic waste and enteric fermentation in livestock. The chapter endogenizes the supply of human labor by considering the energy required to produce human muscle power, aligning with the Miyazawa model. The initial discussion in the chapter avoids matrix algebra, using simple arithmetic instead to aid readers unfamiliar with matrices. Once the basic concepts are covered, matrix algebra is introduced to reinforce the fundamentals of IO, which can be applied to any number of sectors. Additionally, the chapter introduces the IO model of cost and price as the dual to the quantity model, enhancing the understanding of the IO framework.