A Stochastic Neoclassical Input-Output Model with Random Agricultural Supply

Thomas M. Menino Convention & Exhibition Center 

Leontief's input-output model is widely used in economics to predict the impact of a sector-specific demand shock on other sectors of the economy. This model was later reformulated by ten Raa and Mohnen to align with neoclassical assumptions regarding production functions. However, this revised version omits natural resources, which introduces biases in the model's technological coefficients matrix. This paper corrects the ten Raa-Mohnen model and adapts it to the case of an economy dependent on the provision of water for agriculture, where supply is essentially random. The new model is formulated as a stochastic quadratic programming problem that maximizes value added across all sectors of the economy, except for the agricultural sector, whose output is treated as exogenous and stochastic. The objective function also penalizes production in sectors with highly variable prices. The program is subject to various constraints - such as those from the original Leontief model itself and labor and capital endowments - which are satisfied not with certainty but with a given probability. Finally, the proposed model is calibrated using real data from Argentina's System of National Accounts.

input-output model

stochastic programming

agriculture

natural resources

ten Raa-Mohnen model

Argentina 

Government Statistics Section