Handbook of Input–Output Analysis
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Handbook of Input–Output Analysis

Edited by Thijs ten Raa

In this authoritative Handbook, leading experts from international statistical offices and universities explain in detail the treatment and role of input-output statistics in the System of National Accounts. Furthermore, they address the derivation of input-output coefficients for the purpose of economic and environmental modeling, the building of applied general equilibrium models, the use of these models for efficiency analysis, and the extensions to stochastic and dynamic input-output analysis. As well as revealing and exploring the theoretical foundations, the Handbook also acts as a useful guide for practitioners.
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Chapter 11: Input–output-based general equilibrium analysis of efficiency

Victoria Shestalova

Abstract

Under constant returns to scale, price-taking behavior and no external effects the general equilibrium allocation is efficient. Input-output analysis need not make these assumptions and has the capacity to measure the inefficiency of an observed economic allocation. The objective of a national economy is to fulfill domestic final demand. In this chapter the level of domestic final demand is maximized subject to material balance constraints on products and production factors. The gap between the maximum and the observed levels measures the inefficiency in the economy. The linear program that finds the frontier of the economy features complementary slackness: binding constraints are signaled by positive prices and non-binding constraints by zero prices. The frontier program is translated into a complementarity problem, which is easy to solve. The consequent efficiency is decomposed in trade efficiency, Leibenstein's X-efficiency and allocative efficiency. Moreover, Solow's total factor productivity growth measure is decomposed in technical change, efficiency change and a terms-of-trade effect. The analysis encompasses environmental policy analysis.

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