P-graph Model of Economic Networks with Partial Substitution

Abstract

P-graph models of economic networks based on the Leontief input-output framework have been demonstrated in previous work. However, such models are subject to the limiting assumption of fixed technical coefficients that reflect the average state of technology currently in use. This limitation restricts the use of such models to incremental changes; more radical shifts in economic structure cannot be adequately represented. In this paper, a modified P-graph model of economic networks that allows partial substitution of inputs is developed. This modified formulation can represent major structural shifts, such as deep decarbonization or increased circularity, that are needed for improving the sustainability of modern economies. The new model is illustrated using a hypothetical case study. Results show that economic systems which allow for partial substitution are more resilient when disruptions occur in certain sectors of the economy.