Integration of dynamics into input-output analysis

Abstract

The transition to a circular economy requires drastic changes to the economy. A tool for macro-economic analysis of structural changes in the economy, input-output analysis, lacks dynamic features. This thesis set out to integrate dynamic features representing demand change and technological change. A conceptual model is designed that integrates agent-based models representing these dynamics with an input-output model. Demand change was incorporated as individual consumers allocating their budgets with a utility function. A recursive utility function based on the notions of prospect theory was implemented with which consumers allocated their budget over several sectors. For technological change both incremental change was incorporated by implementing the Wright curve, and innovation was incorporated which can be modelled with general evolutionary algorithms. The conceptual model is assessed with a stylised implementation in a proof of concept. The conceptual model shows the potential to replace these static assumptions with dynamic models, however a more detailed representation of product quality is required.