A key role for input-output analysis in policy design

Input-output analysis becomes indispensable for rational policy formulation where two conditions hold: (1) inputs as well as outputs enter society's objective function directly (as in the case of employment, limited energy resources or pollution): and (2) where the economy in question is open, so that macroeconomic policy is largely powerless to increase employment or to influence the use of other inputs. Three issues will be used as examples: attempts to reduce petroleum use through subsidies for other energy sources, attempts to reduce the polluting emissions of production processes, and attempts to stimulate employment in Puerto Rico.