demand and production function

Hello, I know implan model consists of production and demand functions for each industry and commodity. I have one question on those. Are there any manuals or papers that describe gory detail of production and demand function used in IMPLAN?
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  • The Industry balance sheet shows for a given industry all commodity consumed by that industry and all commodities produced by that industry. Conversely the commodity balance sheet shows for a given commodity all industry and institutional producers and all industry and institutional demands for a given commodity. Access the reports: Explore > Social Accounts > Balance Sheets. A definition of the column headers can be found in appendix H of the Version 2 software manual (the balance sheets have the same columns in both versions. Link on this page: http://implan.com/V4/index.php?option=com_docman&task=cat_view&gid=61&Itemid=60
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  • Sorry for asking the similar question.. Are there any user guide and manuals that show the mathematical equations on implan demand and production functuions?
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  • Let us know if this forum discussion doesn't answer your questions: http://implan.com/v4/index.php?option=com_kunena&func=view&catid=80&id=12092&Itemid=35#12092
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  • The reason Im asking this is because we potential might want to put a change in water price as a shock for analyzing the economic impact...I guess the model assumes the constant price, so a change in water price may not make sense in the IMPLAN model..but I also think a price change could be related to a change in industry income, so this might be used as a proxy for looking at the impact of water price change? Is this correct? Another question is, can demand/production function be recovered from the software so that we can accomodate a certain element of the model? Thank you!
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  • Correct, the model responds to a change in production/demand on a specified industry. The impacts are the local economy required to satisfy that production. Modeling how industries respond to a price change of an input has to be modeled outside of I-O. Those responses could then be modeled using I-O to see how the rest of the economy responds. In general, other property income (corporate profits) are treated as a leakage. However, it is common to model loss of household disposable income (as a result of increased prices) through a region's institutional spending pattern (specifically a household spending pattern). You can create a balance sheet (Explore > Social Accounts > Balance Sheet (tab)) to see how much Water/Sewage commodity sector each local industry and institution uses via the commodity balance sheet.
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  • If I have to model this outside Implan model, would it also work to estimate the water demand function and estimate price and income elasticity to calculate the change in water quantity demanded and the change in average consumer's expenditure on water? Can the change in average consumer's expenditure on water estimated from the water demand function be inserted as an input into the implan model?
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  • There is not a general answer for your question. It depends on the industry. Restaurants wouldn't serve water - maybe sell bottled. Agriculture has water conservation techniques so the crop loss doesn't have to be proportional. You could certainly assume that beer and soda production would be proportional to the loss of water. A number of regions have experienced water loss Google may have some post water studies to see what happens that you could use as proxies. Doing a quick search there is this agricultural response to water loss: http://www.agmanager.info/policy/water/ImpactofWaterUseChanges_NW-KS.pdf
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  • when you said a change in disposable income,did you mean'household income change', not insititutional spending pattern? I'm saying this because I couldn't see any category, called, household spending pattern under that category. Thank you!
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  • There are three options for modeling household income 1. Labor Income Change Activity 2. Household Income Change Activity 3. Household Spending Pattern With a Labor Income Change Activity, the software removes payroll taxes, social insurance taxes, commuters, personal taxes, and savings according to the rates reflected in the SAM for your region. The Household Income Change option is useful for when the income comes from some other non-labor source. With a Household Income Change, the software will not remove payroll taxes, social insurance taxes, or commuter spending, but will still remove personal taxes and savings. With these first two options, the spending is said to be "induced" by the new income and all the effects are considered to be induced. With a household spending pattern, all of the specified amount is spent (i.e., none goes to savings, payroll taxes, or personal taxes). This option is often used for tourism studies since the spending pattern is treated as a final demand and the results show direct, indirect, and induced effects. This last option is not found under the New Activity button but rather under Activity Options > Institution Spending Pattern. You will then need to select the representative household income category.
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  • Thanks a lot for your endless help.. I have several questions on speifying household spending pattern. 1. When I import a specific household group, it shows a list of sectors with coefficients. I guess the coefficient represents the expenditure per dollar spent on services and goods from particular industry. My goal is to impose a change in disposable income with respect to a change of residential water price. This case, if I change the coefficients of industry 3033(given that we know value), do all other coefficients automatically change since household spending share needs to be changed as well? 2. Is this based on the change of the average individual (household)? 3. What should I put in 'level' blank of setup activities section when I try to do this household spending pattern analysis?
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  • 1. Correct it is expenditure per dollar on goods and services. You can change the coefficient. It does not rebalance automatically, but you can renormalize it by clicking Event Options/Change All/Normalize. 2. The spending pattern is based on average spending for the income group you have selected. 3. The level should be the disposible income net you want to analyze.
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  • You mentioned that we should put the disposable income in the blank...is that going to be also average net disposable income for income group or total dispoable income? Thank you!
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  • Total disposible income. That value will be multiplied by the coefficients in the household spending pattern. As it sits, the sum of the event values for an impored household spending change should be 1.
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  • Thanks Scott! One last question... When I look at the list of industries with household spending pattern.. Can I consider it as a baseline spending pattern? In other words, if I decide to change the coefficient number in certain industries, there will be results showing job, output, and indirect business tax associated with that change. So, could I consider these results associated with a change in household spending pattern?
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  • Hi James, Yes - the spending patterns are baseline in the sense that they represent what households spent their money on (per $1 of income) during that year (whichever year of IMPLAN data you are working with). Changing some of the coefficients and then running total disposable income through that spending pattern will not show you the [u]change[/u] in spending. What I would do is this: 1. Go to Explore > Study Area Data > View By: Institution Demand and take note of the Sum of Households demand for commodity 3033. 2. Multiply the figure from Step 1 by the % change in household water expenditure. 3. Go to Activity Options > Import > Institution Spending Pattern and select the income group that best reflects the median income in your study area. Click on the Activity to highlight it, then press Edit Activity and enter the value from Step 2 (as a negative value) as the Activity Level. 4. Zero out the coefficient for commodities 3360 and 3361 since households will not likely decrease their expenditures on rent and mortgages. This assumes that households will decrease their purchases of water at the same rate that they decrease their expenditures on everything else (other than rent and mortgages); if you know how much households will decrease consumption of water, you could also zero out the coefficient for commodity 3033 and then model that decrease separately as a negative Industry Change Activity for sector 33. 5. Click Event Options > Change All > Normalize Events 6. Analyze the Scenario Note: this assumes that in order to pay for the higher water rates, households decrease consumption of everything else (excluding rent and mortgages) rather than taking money out of savings to cover it.
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  • Jenny, Thank you so much, this really helps a lot.. One thing I'm confused is, when you said "if you know how much households will decrease consumption of water, you could also zero out the coefficient for commodity 3033 and then model that decrease separately as a negative Industry Change Activity for sector 33" 1. Does this mean we can model both industry change and household spending pattern simultaneously? 2. Also, does this mean we can estimate water demand function and use price elasticity of demand as a proxy for industr change activity? 3. Also, as for coffcients for household spending pattern, does this represent the baseline coefficient for average household in specific year? Thanks a lot!
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  • Suppose you know that water prices will increase by 5% and current household expenditures on water $1,000,000. A 5% increase in price would cause household water expenditures to be $1,050,000. So %50,000 must shift away from other purchases. If you use the above method without adjusting the coefficient on commodity 3033, then households will decrease purchases of everything (excluding rent and mortgages but including water) according to their current spending habits. I.e., if they currently spend 1% of each dollar on commodity X, then they will decrease their expenditures on commodity X by 0.01 * $50,000 = $500. In other words, if 1% of each dollar is spent on commodity X, then 1% of the shift in spending will come from commodity X. This will imply a particular price elasticity of demand for water (you'll have to calculate this using your study area data) - but this is an assumption that we are making and is not something that IMPLAN revealed to us as the true price elasticity of water demand. If, on the other hand, you know/think that price elasticity of demand for water differs from this, then you would want to zero out the coefficient for water in the above method (so that there is not any reduction in water consumption) and then model the appropriate reduction in water consumption separately. Yes, you can run both Activities as a single Scenario. Yes - the spending patterns are baseline in the sense that they represent what households spent their money on (per $1 of income) during that year (whichever year of IMPLAN data you are working with).
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  • Jenny, I forgot to mention one thing, what is the number in parenthesis when looking at the results of scenario.. I guess this represents the negative value?
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  • That is correct.
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  • Jenny, Sorry for continuing to ask you questions. But I'm confused about industry change you mentioned. Let me briefly explain the scenario I thinking. Supposed that I estimated the water demand function based on water price and residential water consumption data (gallon/capita/month). This produces the price elasticity of water demand, -0.2 which means 1% increase in residential water price results in a 0.2% decrease in water consumption. You mentioned that I need to zero out the coefficient for 3033, and create industry change activity to incorporate this new information. Here is my question. How do we take account for the % change in water consumption with respect to 1% change in water price in industry change activity? My understanding is that we only can handle 'sales/output' values, but not associated with quantity. Would you please be able to clarify this for me? Also when it comes to commodity 3033, how do we know that it includes the residential water demand within the study area..in other words, it could include other activities such as water use for energy, etc. Can we tease out only residential water given this category? Thank you very much!
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  • That is correct - it needs to be a dollar value. But if you know current dollar value (as shown in the Study Area Data), you can multiply that by the percentage change. Suppose you want to analyze a 5% increase in water prices. Then you know that -0.01 = percent change in quantity demanded of water. If you know the starting quantity demanded, you can multiply this by -0.01 to get the level change in quantity demanded. You can mutliply this by the new price (which is 0.05 * the current price) to get the level change in water expenditures. You could apply this to commodity 3033, which would split the impact amongst all producers of commodity 3033 or you could apply it to sector 33 (private) or 432 (public) if you are analyzing a rate change in one of these particular entities. Commodity 3033 includes water supply, sewage treatment, and other utility services and it is demanded by households, industry, and government. There is no further sector detail other than the split between private vs. public suppliers of the commodity. I would think roughly the same set of inputs and labor would be required to supply homes with these services as would be required to supply businesses with these services, such that it doesn't matter who is demanding them; but if you know otherwise, you can adjust the spending pattern for sector 33 and/or 432 to reflect those differences. I don't know your study area, but the state's I've looked at have much higher institutional (household + government) demand for 3033 than industry demand. You can check for your study area by going to Explore > Social Accounts > Balance Sheets tab > View By: Commodity Demand and selecting commodity 3033 from the drop-down list. Then compare the Industry Demand tab (Regional Inputs column, Total row) to the Institution Demand tab (Regional Demand column, Total row).
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  • Jenny, Thank you so much for your clarification. So, are you suggesting that we can use the water expenditure calculated by 0.05*water price in industry change activity as a sale value?
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  • We worked out an example in Excel and have attached it here. Please let us know if you have any further questions. [attachment=318]Book2.xlsx[/attachment]
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