Pollution Affecting Producers in an Input Output Context

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Input-output models are attractive for the study of pollution problems because they can trace pollutant flows through the whole economy. The purpose of this paper is to show how input-output models, while easily adaptable for the case of pollution generated by producers and falling on consumers, are unable to handle pollution affecting producers and then to show how an essentially neoclassical model of pollution falling on producers can be put into an input-output context. In the neoclassical model pollution affecting producers has a dual effect on commodity prices and resource endowments. The dual effects of pollution are then interpreted by appealing to two theorems of international trade.