Leontief versus Ghoshian Price and Quantity Models

The classical, demand-driven input-output model dates back to Leontief 24; 25. Its economically complete opposite, the so-called input-output model was developed almost forty years ago by Ghosh 16, whereas its first application came more than ten years later by Augustinovics 1, followed by Giarratani 18. The first theoretical reservations were formulated another ten years later by Giarratani 19 and Oosterhaven 31, 140-1. Despite these reservations, the model came more or less en vogue in the 1980s. Several applications appeared; at best paying only lip service to this earlier critique 10; 5. Moreover, without much reservations the model also entered the major input-output textbook 28, 317-22, while uncritical generalizations and reiterations appeared in the theoretical literature 8; 3; 9. Then a heavy discussion about the economic underpinning of the supply-driven quantity model was initiated by Oosterhaven 33; 36; 21; 34. With that debate the enthusiasm to perform downright applications of the supply-driven model seems to have diminished. Literally in the footnotes of that debate, the (non-)existence, the mathematics and the possible economic interpretation of the dual, price version of the supply-driven model was discussed 33; 34. Independently of this discussion, Davar 9 presented the dual model in extension, but did not discuss the economic plausibility of the underlying economic assumptions nor their implications. In view of the misinterpretations and misuse of the quantity version of the supply-driven model, this contribution aims at an early evaluation of its price version that is as complete and as balanced as possible. It is well known that the dual version of the regular input-output model is used to simulate cost-push inflationary processes 26, 188-201; 7, 246. Other applications relate to, for instance, the price effects of pollution abatement 17, effects of rising energy cost 29, and energy price effects in multiregional or in extended interregional models 35; 32. Of course, this dual, price version of the Leontief model is based on the same stringent, standard assumptions of the quantity version and on some heavy, additional assumptions that are made for the price version 37. Naturally, the potential use of the dual of the supply-driven model lies in the simulation of demand-pull inflationary processes as opposed to the cost-push applications of the dual Leontief model. Hence, part of our evaluation will be directed toward the question whether such applications are justified from an economic point of view or not. Our discussion will start in the next section with a brief summary of the Leontief quantity and