A survey of environmental problems in Eastern Europe

This paper deals with the increasing interaction of economic and environmental issues in Eastern Europe. The paper starts with a discussion of environmental problems in these formerly centrally planned economies. The grave environmental problems these countries face are surveyed and an explanation is provided in terms of the nature of the communist system. While a solution must be sought in an international cooperation context, involving the developed West European countries, many emerging international cooperation schemes inspired by environmental economic theory are no longer effective in the light of the disastrous loss of competitiveness of East European industries. New initiatives on the part of West European countries seem to be called for

On the complete instability of empirically implemented dynamic Leontief models

On theoretical grounds, real world implementations of forward-looking dynamic Leontief systems were expected to be stable. Empirical work, however, showed the opposite to be true: all investigated systems proved to be unstable. In fact, an extreme form of instability ('complete instability') appeared to be the rule. In contrast to this, backward-looking models and dynamic inverse versions appeared to be exceptionally stable. For this stability-instability switch a number of arguments have been put forward, none of which was convincing. Dual (in)stability theorems only seemed to complicate matters even more. In this paper we offer an explanation. We show that in the balanced growth case--under certain conditions--the spectrum of eigenvalues of matrix D equivalent to (I - A)-1B, where A stands for the matrix of intermediate input coefficients and B for the capital matrix, will closely approximate the spectrum of a positive matrix of rank one. From this property the observed instability properties are easily derived. We argue that the employed approximations are not unrealistic in view of the data available up to now

Thinking about Big Floods in a Small Country - Dutch Modelling Exercises

In this contribution we discuss new developments in Dutch thinking about the increasing risk of big floods. A first issue concerns the choice of methodology. Today several ones exist to assess the consequences of big natural catastrophes. These methodologies differ significantly in background philosophy, objective or scope. In the U.S., for example, several market-based approaches have been presented recently, focusing on short run disequilibria. Certain preferences seem to exist, depending on country and type of catastrophe we wish to study. Nonetheless, by and large the debate is still open, depending on what the country or region views as its major problem. It is questionable whether market-based approaches are fruitful for a small country with a large state influence, such as the Netherlands. Probably it is better to start from the notion of specific types of network disruptions in a highly developed and densely populated country. In this paper, we focus on the interdependencies between production and consumption activities. This leads to an investigation based on Input-Output (I-O) methodologies. A big flood then causes a series of disruptions in the existing production and consumption networks. Our paper addresses the point that I-O as it stands is not very appropriate. The basic problem is that I-O models stress interaction and equilibrium, while here we have to deal with disruption and disequilibrium. In our contribution, we model the consequences of a disaster where a part of the existing economic networks fails temporarily or forever. Several situations can be distinguished: after the disaster, many suppliers will have lost their customers. Vice versa, it also may be impossible to satisfy existing demand because the supplying firms cannot deliver any more. This means that the economy suddenly has to decide on the way its now restricted resources should be distributed. In fact, a major decision is asked for. Economic policy needs to steer the distribution of the available goods in intelligent ways between various categories of buyers and suppliers. In a pure market economy decisions made most likely will be different from those made in a heavily regulated country like the Netherlands. Our research is based on the basic hypothesis underlying I-O models, i.e. the need to distinguish between two major categories of destination, ‘final consumption’ (such as households, investment demand, government demands, exports), and ‘intermediate demand’ (basically all inputs into the industrial core of the country). Outcomes will be different according to the choices being made. One reason is the presence of multiplier effects, which reflect current interactions. A choice in favour of final demand will alleviate problems of the affected groups, but at the same time will increase inter-industry imbalances, and imply a heavy role for supporting import. The choice is not straightforward, and involves complex interrelations and interactions. In this paper we use regional I-O tables in combination with GIS-based techniques. In the empirical part of the paper we discuss the consequences of a large dike break in the central part of the country.

Mathematical Models in Input-Output Economics

This paper describes the mathematical basis for input-output economics, the major types of models, and the underlying economic theory. The features of these models that make them especially well suited for understanding the connections between the economy and the environment are emphasized throughout. These include the dual physical and price representations and the representation of resource inputs as factors of production, whether they are priced or not. The basic static physical and price models are described, along with their major properties and associated databases. The most important approaches to analysis involve multipliers, decomposition, and scenario analysis. Going beyond the basic static framework requires the progressive closure of the model by making exogenous variables endogenous while maintaining simplicity, transparency, and the distinctive feature of an input-output model: the simultaneous determination of solutions at the sectoral level and the economy-wide level. Closures for household activities and for investment are described by way of example. The major extensions of the basic model accommodate the representation of pollutant emissions and policies for constraining them, dynamic models, and multi-regional models, the latter including a new version of a world model that solves for bilateral trade flows and region-specific prices based on comparative advantage with factor constraints. The concluding section describes the challenges currently being addressed within the field. An annotated bibliography provides references for further reading and includes both classic articles and a representation of recent research.

Two-minor stable matrices and the open Leontief model

AbstractTwo-minor stable matrices are square matrices such that all (2,2) minors with no elements on the main diagonal are zero. The effects of taxes and subsidies on the competitive prices of output in Leontief's input-output model are examined by e.g. Metzler, Allen and Atsumi. We reexamine these studies and give results under more “normal” assumptions. Using two-minor stable matrices, the question is answered under what conditions the prices of the nontaxed and nonsubsidized goods do not change

Vulnerability and Resilience in the Caribbean Island States; the Role of Connectivity

It is well-known that small states, because of their size, tend to be less endowed with natural resources than big ones. This makes small states vulnerable and raises the question if specific policies can be implemented to offset the drawbacks of their small size and to increase resilience. We address this question in this paper, thereby focusing on the role of connectivity – between states, organisations, parties, or otherwise – in understanding a country’s vulnerability and resilience. Here ‘policies’ are interpreted as ‘institutions’ in the sense of Douglass C. North (1990), i.e. as ‘humanly devised constraints that structure political, economic and social interaction’. We focus on the Caribbean area, which is characterised by a wide variety of small states, each with its own set of rules and regulations. Within this area, we concentrate on the relationship between three Dutch Caribbean islands, i.e., Aruba, Curaçao, and Sint Maarten, on the one hand, and the Netherlands, the former colonizer, on the other hand. As a first step we have measured the economic vulnerability and resilience of 17 Caribbean island states, both dependent and independent, employing the theoretical framework proposed by Lino Briguglio. The outcomes show that the three Dutch island states are performing comparatively well, although there are individual differences. We provide a first effort to explain this outcome in terms of the continuing interest of the three island states to keep their ties to the former colonizer viable. Here the presence of ‘systemic interest’ as shown by the stakeholders appears to be a most important variable

Theoretical and empirical characterization of water as a factor:Examples and related issues with the world trade model

This article originates from the theoretical and empirical characterization of factors in the World Trade Model (WTM), see Duchin (2005). It first illustrates the usefulness of this type of model for water research to address policy questions related to virtual water trade, water con-straints and water scarcity. It also illustrates the importance of certain key decisions regarding the heterogeneity of water and its relation to the technologies being employed and the prices obtained. With regard to WTM, the global economic input-output model in which multiple technologies can produce a “homogeneous output”, Steenge et al. (2018) showed that two different mechanisms should be distinguished by which multiple technologies can arise, i.e., from “technology-specific” or from “shared” factors, which implies a mechanism-specific set of prices, quantities and rents. We discuss and extend these characterizations, notably in relation to the real-world characterization of water as a factor (for which we use the terms technology specific, fully shared and “mixed”). We propose that the presence of these separate mechanisms results in the models being sensitive to relatively small variations in specific numerical values. To address this sensitivity, we suggest a specific role for specific (sub)models or key choices to counter unrealistic model outcomes. To support our proposal we present a selection of simulations for aggregated world regions, and show how key results concerning quantities, prices and rents can be subject to considerable change depending on the precise definitions of resource endowments and the technology-specificity of the factors. For instance, depending on the adopted water heterogeneity level, outcomes can vary from relatively low-cost solutions to higher cost ones and can even reach infeasibility. In the main model discussed here (WTM) factor prices are exogenous, which also contributes to the overall numerical sensitivity of the model. All this affects to a large extent our interpretation of the water challenges, which preferably need to be assessed in integrated frameworks, to account for the main socioeco-nomic variables, technologies and resources

Mathematical Models in Input-Output Economics

This paper describes the mathematical basis for input-output economics, the major types of models, and the underlying economic theory. The features of these models that make them especially well suited for understanding the connections between the economy and the environment are emphasized throughout. These include the dual physical and price representations and the representation of resource inputs as factors of production, whether they are priced or not. The basic static physical and price models are described, along with their major properties and associated databases. The most important approaches to analysis involve multipliers, decomposition, and scenario analysis. Going beyond the basic static framework requires the progressive closure of the model by making exogenous variables endogenous while maintaining simplicity, transparency, and the distinctive feature of an input-output model: the simultaneous determination of solutions at the sectoral level and the economy-wide level. Closures for household activities and for investment are described by way of example. The major extensions of the basic model accommodate the representation of pollutant emissions and policies for constraining them, dynamic models, and multi-regional models, the latter including a new version of a world model that solves for bilateral trade flows and region-specific prices based on comparative advantage with factor constraints. The concluding section describes the challenges currently being addressed within the field. An annotated bibliography provides references for further reading and includes both classic articles and a representation of recent research