Introduction

Leontief was one of the first to address issues of social cost in an input-output context, proposing a particular model to deal with it (Leontief, 1970; Leontief and Ford, 1972). The basis of Leontief's environmental model (LEM for short) is a traditional open input-output model. His extension meant the introduction of coefficients representing the outputs of noxious substances and the introduction of specific anti-pollution processes or activities. Leontief formulated environmental policy in terms of a program aimed at reducing emissions into the environment. Abatement involved the operation of anti-pollution activities. Inputs to these new activities consisted of traditional goods (such as machinery, electronics or labor) and the – jointly produced and “free” – toxic substances. Outputs consisted of the elimination of the toxic substances. Thus, in Leontief's view, the “physical costs” of environmental policy were expressed as additional need for the traditional goods and labor, the model's primary factor.

How to address issues of social cost is an old problem. Many proposed solutions are based on a complex system of taxes and subsidies throughout the economy (e.g. Baumol and Oates, 1975). As such, they depend on detailed knowledge of the origin and type of pollution. Input-output analysis, with its focus on technology, therefore, is a good candidate for policy analysis in such cases. The development of the LEM, and subsequent work on it, illustrates this. However, many aspects, both of a theoretical and a practical nature, still need further investigation.