
What Can We Learn From Random Walks on Input-Output Tables
In this post we elaborate on the insights we can derive when using well established Environmentally-Extended Input-Output frameworks in a slightly different manner, as the canvas for monetary random walks "following the money"
Summary
We imagine the random propagation of money flows through simplified economic networks as a sequence of monetary transactions following a stochastic process. We follow the journey of a cash amount. Whenever a transaction in this chain implies an environmental impact, that impact is recorded and cumulated. Computing the expected outcome of such flows reproduces the standard results of environmentally extended input-output models. The random walk interpretation allows the computation of various additional statistical properties, one example being estimating a variance of environmental impact or intrinsic uncertainty around the central estimate. We interpret this uncertainty as being a concentration risk measure.