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Economic Systems Research

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A Review of the Literature Supporting

the Hybrid Approach to Constructing
Regional InputOutput Models
Michael L. Lahr

Regional Financial Associates , 1450 Boot Road, Suite 600, West

Chester, PA, 19380, USA
Published online: 28 Jul 2006.

To cite this article: Michael L. Lahr (1993) A Review of the Literature Supporting the Hybrid
Approach to Constructing Regional InputOutput Models, Economic Systems Research, 5:3,
277-293, DOI: 10.1080/09535319300000023
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Economic Systems Research, Vol. 5, No. 3, 1993

A Review of the Literature Supporting the Hybrid

Approach to Constructing Regional Input-Output
Models

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MICHAEL L. LAHR

ABSTRACT Fueled by the high costs of survey-based models and the inherent inaccuracies of non-survey models, a literature has emerged on hybrid regional input-output
models. Although this literature has been instructive on the general approach that should
be taken in the construction of such models, authors have provided little information about
the precise methods they have used to i d e n t z . the portions of the models for which superior
data are worth the effort to obtain. I n addition, the role of non-survey techniques used to
produce survey-based tables has not been well articulated in the literature. This paper
reviews approaches that have been used in input-output analysis that might be adopted
for use in constructing hybrid input-output models. It is argued that hybrid model
constructors should pursue the most accurate non-survey model of their region as possible
(use accurate regional purchase coeficients and minimize aggregation), always seek
superior data for households and establishments in resource-based and 'miscellaneous'
sectors, and sequentially i d e n t z . other sectors that should receive superior data. This last
task should be pe$ormed by examining the sensitivity of sectors to changes in the
proportion of their inputs that are imported. Other than intermediate inputs and outputs,
labor income and intrasectoral shipments for any specified sector, it is suggested that, for
each targeted sector, modelers seek superior data only for a limited number of cells
associated with the sector in the direct-coeficients matrix. These cells should be those that
are critical to the overall accuracy of the Leontief inverse. Finally, it is suggested that a
procedure ought to be used to reconcile the various data sources that will inevitably be
employed.

1. Introduction
Survey (or survey-based) and non-survey methods are no longer considered the
most cost-effective means of constructing sufficiently accurate regional input-out
put (10) models. Now, 'hybrid', 'mongrel', 'semi-survey' and 'partial-survey'
Michael L. Lahr, Regional Financial Associates, 1450 Boot Road, Suite 600, West Chester, PA 19380,
USA. Thanks and appreciation are due to G. Andrew Bemat, Richard S. Conway, Chinkook Lee, Ronald
E. Miller, Gerald Schluter and Benjamin H. Stevens for reading and rereading various drafts of this paper
and for providing invaluable advice toward revision. I also acknowledge the time and facilities availed to
me at the University of Pennsylvania, Bryn Mawr College, and the US Department of Agriculture's
Economic Research Service to complete the paper.

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278 M. L. Lahr
regional models are all the rage. The trend toward hybrid models is natural. It
stems from the high costs of the full survey-based approach and from the obvious
inadequacies of many low-cost non-survey techniques (see Brucker et al. (1987,
1990) and accompanying comments).
T o date, however, widely available literature about hybrid models is limited to
a dozen articles (Hansen & Tiebout, 1963; Williamson, 1970; Hewings, 1977;
Henry et al., 1980; West, 1980, 1990; Hewings & Romanos, 1981; Phibbs &
Holsman, 1982; West et al., 1984; Ralston et al., 1986; Greenstreet, 1989;
Boomsma & Oosterhaven, 1992) and two little-referenced books (Schaffer et al.,
1976; Jensen et al., 1979). Basically, such models combine non-survey techniques
for estimating regional direct-requirement models with superior data, which are
obtained from experts, surveys and other reliable sources (primary or secondary).
Such superior data can be added at any stage of model construction.' According
to West (1990) the basic steps for producing hybrid models are:
(1) adjusting the technology table (updating and international trade adjustments);
(2) adjusting for regional trade patterns;
(3) defining regional sectors (identifying final aggregation level and inserting
superior data);
(4) developing a prototype model (reconciliation if necessary and cell sensitivity analysis);
(5) deriving the final model (insertion of final superior data).

Essentially, the hybrid methods reported by West (1990) and other researchers
differ only in the way they adjust for regional trade patterns and in that researchers
other than West lack cell sensitivity analysis. In all cases, the hybrid methods are
defined only in general terms. Very little is said about how to determine which
survey, primary, or other preferred data (henceforth, all such data will be referred
to as 'superior data') are worth the effort to obtain, or how to know which data are
preferred to those in the non-survey models. T h e literature on survey-based
models, which could be helpful in telling us the role of survey data in hybrid
models, is wanting when it comes to defining the role that so-called non-survey
techniques have played and the exact nature of the survey work that was required
in their construction (Stevens, 1988).
Hence, the purpose of this paper is to review approaches that have been used
in I 0 analysis that might be adopted for use in constructing hybrid models. In this
way, we can more easily identify the tools that could be used or further developed
to produce hybrid models.
2. Constructing Non-survey Input-Output Tables
I

Since hybrid regional I 0 models are based on non-survey models, it is critical to

use the best non-survey methods possible. This step in the production of hybrid
models has long been acknowledged. If the model is produced using the most
accurate non-survey model possible for the region, then the sectors a n d o r cells in
the resulting model that do not receive superior data are as accurate as possible
given the resources available. Moreover, the accuracy of the non-survey model is
even more critical for many advanced hybrid techniques since researchers are likely
to use information from the non-survey model to identify the superior data that
needs to be obtained.

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Hybrid Approach to Constructing Input-Output Models 279

The literature recognizes many approaches for producing non-survey I 0
models (Miller & Blair, 1985; Richardson, 1985). Most common are those that
trade-adjust technology coefficients. Of these techniques, only the 'rows only'
approach (also known as the regional purchase coefficient (RPC) approach) can
truly be termed 'pon-survey' or 'synthetic'. The so-called 'short-cut' and RAS
techniques (Richardson, 1985), which also trade-adjust technology matrices, generally require some survey data. Hence, when reference is made to non-survey
approaches, it means those that Stevens et al. (1989) describe as estimating RPCs.
The RPC approach is used to construct the ready-made models reviewed by
Brucker et al. (1987, 1990) and any other models that rows-only-adjust technology
matrices into regional direct requirements matrices.
Given that hybrid models are likely based on RPC-trade-adjusted non-survey
models, which attributes of non-survey models determine their accuracy? The
answer to this is easy, at first glance. Only two basic tools are needed to produce
non-survey regional I 0 models: the set of RPCs and a technology matrix.
Afrasiabi and Casler (1991) show that differences in trade, industry mix, price
and technology are the components of variation in a region's Leontief inverse. We
have already put aside discussions of trade via the RPCs. None the less, as early
as Isard (195 1) applying RPCs to a national technology matrix has been one of the
main means of producing a regional I 0 model. The assumption behind this
concept is that technology within a nation can be considered spatially invariant.
Before Hirsch (1959), scholars knew that the assumption was quite strong. The
only alternative was to produce a technology matrix based upon expensive timeconsuming survey work. Now, however, regional technology data on certain
industries are available from some national government^.^ Unfortunately, their
costs tend to make them unobtainable except for the most serious non-survey I 0
model constructors. Suffice it to say that most producers of regional I 0 models
tend to regionalize national technology.
Currently, highly aggregated I 0 models appear to be typical only of smaller
national economies and regions. In less-developed countries especially, one can
understand that data problems may obtain and that a limited number of distinct
detailed sectors may actually exist. But for regions of developed countries, the
tendency to establish aggregate structures may be as wrong-headed as it is natural.
According to Stevens and Lahr (1992), the problem manifests itself in two forms:
the use of improper industry mix in the aggregation process and the post-aggregation application of RPCs.
These issues have been discussed in the aggregation literature, albeit not
thoroughly. Using a single empirical test of the 1947 New England model, Shen
(1960) pointed out that when aggregating we should weight sectors using regional
weights prior to a g g r e g a t i ~ nUsing
.~
a single empirical test of the 1972 Washington
State model, Sawyer and Miller (1983) and Lahr (1987) extended Shen's work by
showing that more accurate models can be obtained by applying RPCs to
regionally weighted sectors prior to aggregation than after aggregation. Stevens and
Lahr (1992) support this assertion using a set of simulations and go on to reject
the work of Doeksen and Little (1968), Williamson (1970) and Hewings (1972),
who would have us believe that smaller models are the best for small regions.
In general, the idea that aggregation can induce a significant amount of error
into I 0 models is supported by a plethora of theoretical literature (see Chipman
(1976), Chakraborty & ten Raa (1981) or Kymn (1990) for reviews of the main
body of this literature). In essence, this literature tells us that for aggregation bias

280

M. L. Lahr

not to enter in the aggregation of any two sectors, they should produce goods or
services that are perfect complements or substitutes for each other and they should
have identical technologies and trade patterns. This implies that almost any
aggregation introduces error. Consequently, it appears that we should keep not
only national technology as detailed as possible, but also the resulting regional
direct-coefficients matrix as detailed as possible.
3. The Problem of Obtaining Secondary Regional Economic Data

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The truth is that our capacity to develop highly sophisticated regional

models has far outrun our ability to implement them, given the nature of
available data and data-gathering techniques.
This quotation by Miernyk (1976, p. 54) points out the crux of the problem facing
regional economists, particularly those that are I 0 specialists. Computing costs, a
major barrier to the construction and use of regional models in the past, have now
lowered sufficiently to allow computers to be transported to the field. We are still
unable to measure the accuracy of non-survey techniques or even survey-based
models, howeverY4and the number of variables that can be used to measure the
representativeness of sector samples, when survey work is performed, has not
increased. Hence, there is still the need "for better basic data collected on a
uniform basis" (Miernyk, 1976, p. 54).5
T o keep the costs of survey work to a minimum (i.e. to keep the costs of the
hybrid model 'within reason'), two questions remain. What minimum set of
questions should be added to the battery of questions already asked by federal
agencies? And given that we must obtain some data ourselves, what are some
economical ways to collect regional data for I 0 models? The answer to the latter
question appears to be two-pronged. First, we could ask fewer questions on the
survey questionnaire, by making them industry specific. By identifying a minimum
set of questions, we hope to obtain a solution to the problem of government census
agencies that are seeking an inexpensive way of expanding their existing coverage
of inter-industry flows. The other approach is to reduce the number of establishments and households surveyed. Both fewer questions and fewer establishments
surveyed mean less time and expense taken in the interviewing process.
4. Strategies for Targeting Survey Questions
4.1. The Importance of Trade and the HouseholdLabor Sector
What have researchers done to advance these two approaches of obtaining regional
I 0 data in an economical fashion? Miernyk (1970, p. 306), a strong proponent of
survey-based models, writes that
geographic specialization tends to produce variation in regional technical
coefficients around the average coefficients for a given sector of the
national economy. But it is even more important to take into account
differences in trade patterns from region to region, and the effects that
these have on intermediate regional demand.
Bourque (1971, p. 99), one of the main forces behind the many survey-based
Washington State models, writes that "the principal function of surveys" is to
break out "each cell of the technical coefficients table to determine the proportion
of input provided locally and the proportion imported". While investigating the

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Hybrid Approach to Constructing Input-Output Models 28 1

stability of the survey-based Washington State models, Conway (1980, p. 169)
empirically demonstrated both Miernyk's and Bourque's statements by noting that
most of the instability in the regional direct-requirements matrix is "caused by the
apparent short-run shift in the region's propensity to import". The above research
tells us that questions regarding trade are quite important. This is not so surprising, since the purpose of the time-tried procedure of regionalizing I 0 models is to
adjust the national models for trade.
Other recent research suggests that, for models closed with respect to households, the household/labor sector is a critical sector for which to obtain superior
information (Stevens & Trainer, 1976, 1980; Park et al., 1981; Garhart, 1985;
Garhart & Giarratani, 1987a, b).6 This is not so surprising either. First, the local
labor income coefficient generally is the largest coefficient for any given column.
In addition, labor income is largely used to buy goods from non-manufacturing
sectors, which tend to purchase large proportions of their demands (including
labor services) locally. Hence, since the household/labor sector induces the region
into retaining much economic activity, its multiplier effects would be comparatively high in any given model. So, the mainstream regional literature supports our
intuition. But if we have more time and money (but not enough to ask about all
input requirements), are there other questions that, if answered by establishment
or household via survey work, would greatly enhance a model's accuracy?
4.2. Identzfjing Other Critical Cells
Restating the question in the last paragraph, what other row cells besides those on
labor income and inter-regional trade patterns would add most to the accuracy of
a non-survey regional I 0 model? This issue has been one of interest to researchers
as early as Yershof (1965) and as recently as Xu and Madden (1991). The idea
behind this research is if certain input coefficients can be identified as being critical
to the accuracy of a model, then they can be targeted for obtaining superior
information.
Perhaps the earliest work shed some light on this subject is that by the
mathematicians Sherman and Morrison (1949), who present a formula to show
how changes in a column or row of a matrix affect its inverse. Woodbury (1950)
came up with a general formula that incorporated both Sherman and Morrison's
column-row change effects as well as their (Sherman & Morrison, 1950) singlecell change effects on an inverse. This line of research has recently been
summarized by Miller (forthcoming).
Yershof (1965) worked on the sensitivity of sectoral gross output to changes in
direct-requirements coefficients, his 'tolerable limits of change'. This approach
calculates the amount that the direct-requirements coefficients must be perturbed
to effect a 1% change in the output of any sector. Jilek (1971) shows that the size
of the direct-requirements coefficient is critical to determining a cell's effect on
sectoral output. Despite the flurry of European research since Jilek using tolerable
limits, this approach is limited since it enables analysis of the effects of a coefficient
perturbation on the output of only one sector at a time.
The first empirical work on the effects of coefficient change on all multipliers
was by West and Jensen (1977), who suggested "that the instability of output
multipliers varies directly with the size of the multiplier and with the extent to
which individual coefficients dominate their respective columns in the technology
matrix". In simulations extending this research, Jensen and West (1980, p.668)

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282 M. L. Lahr
state that there is "some empirical support for the notion that the relatively larger
coefficients exert relatively more influence on multipliers" and conclude that I 0
model constructors should direct their budget resources toward ensuring accuracy
in these relatively large coefficients. They further suggest that, 'as a rough guide',
only the first 50% of the coefficients in a direct-requirements matrix exert any
significant effect on multipliers.
West (1981) continued developing this work with a formula that enables the
ranking of single direct-requirements coefficients in order of their importance in
affecting all output multipliers. West (1982) generalized this work by using Evans's
(1954) approach to analyze the effects of direct-requirements matrix errors on the
Leontief inverse. Despite what seems to be a superior approach in West (1982),
most leading hybrid model builders report using West's (1981) approach, which
has the implication that these modelers obtain superior information on a cell-bycell basis.
The approach of getting information on a cell-by-cell basis has its limitations.
As Schintke and Staglin (1988) have pointed out, it is generally easier to collect
information from a set of establishments all at once rather than in a piecemeal
fashion. This goes against the grain of literature by the main proponents of hybrid
modeling. T h e idea of surveying to get superior estimates for the largest
coefficients, say, in a given row and column for a sector is easy to implement.
Surveying to obtain superior estimates for the 100-500 most important coefficients
in a 500 x 500 matrix as proposed by the most prolific hybrid modelers, however,
is another story. It appears that we should identify sectors through West's (1982)
approach, but keeping in mind the point made by Schintke and Staglin (1988).
Recall that the purpose of producing hybrid models in the first place is to keep the
costs of obtaining primary data to a minimum. Hence, when surveying, rather than
ask questions of firms in an 'additional sector', we should generally prefer to ask
'additional questions' of firms with which we already have contact. Of course, we
should limit ourselves only to those questions that will significantly increase the
accuracy of the model. (According to Jensen and West (1980) this means any cells
in that sector with values greater than the median cell value of the model-as a rule
of thumb.)

5. Strategies for Identifying Important Sectors to Survey

5.1. The 'Key' Sector Approach
The question 'what sector is the most important?' is not a new one. Rasmussen
(1957, Chapter 8) first tried to answer this question and termed such an industry
a 'key industry', which he described as an industry enjoying high backward
linkages7 while, simultaneously, other industries display a low amount of variance
in their dependence upon the industry being measured (his 'sensitivity of dispersion' measure). At almost the same time, Chenery and Watanabe (1958) noted
that two ratios-the ratio of purchased inputs to the value of production and the
ratio of intermediate to total demand for a given commodity-can be used to
measure the nature of a sector's interdependence with the rest of an economy.
Hirschman (1958, Chapter 6) put forward these concepts as important considerations for developing economies when targeting industries for future investments,
which emphasizes a more dynamic view of the key industry than we need.
Primarily based upon Hirschman's summary of these measures, a large literature developed. It pointed out the deficiencies of Chenery and Watanabe's

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Hybrid Approach to Constructing Input-Output Models

283

approach because of its strict reliance on direct requirements. It also described the
benefits of including Rasmussen's measure of industry sensitivity of dispersion and
its associated variance measure.
Jones (1976) and Beyers (1976) pointed out that forward linkages are better
measured for Rasmussen's technique by using a supply-side I 0 model, which had
been suggested by Ghosh (1958) and Augustinovics (1970). In a harsh critique of
the supply-side model, Oosterhaven (1988, p. 210) suggests that the measurement
of forward linkages may well be one of its few legitimate uses.
In the meantime, others (Hazari, 1970; McGilvray, 1977; Rao & Harmston,
1979) had been noting that key sectors should not just be identified by their
proportional effect, simply using a Leontief andlor Ghoshian inverse. Instead,
proportional effects should be weighted by sectors' contributions to the domestic
product, in the static case, or likely induced levels of investment, in the dynamic
case. For identifying a sector for survey work when constructing a general-purpose
I 0 model, this would mean weighting the proportional effects by some measure of
the likely direct effects for a typical impact analysis to be analyzed by the ultimate
model. Partly in response to this, a sizeable literature on weighted total linkages
has emerged (Paelinck et al., 1965; Miller, 1966; Strassert, 1968; Schultz, 1976,
1977; Meller & Marfan, 1981; Loviscek, 1982; Cella, 1984; Szyrmer, 1984, 1986,
1992; Harrigan & McGilvray, 1988; Clements, 1990).
Lahr (1992) has reviewed and compared these measures and determined that
for the purposes of identifying a sector that should be surveyed to produce a more
accurate model, an approach akin to that of Meller and Marfan (1987) is most
appropriate for targeting sectors for superior data. Lahr goes on to postulate that,
given a non-survey model regionalized using RPCs, a measure more akin to that
of a weighted version of Szyrmer's (1984, 1986, 1992) total flow multiplier would
be appropriate since RPCs are assumed to account relatively well for the distribution of goods and services across rows.

5.2. The Sensitivity-Analysis-of-Zmpom Approach

Although the total linkage measure has some intuitive appeal in targeting sectors
of non-survey models for survey work, the mechanics of the hypothetical extraction
of sectors provide an overstatement of a given sector's importance to the survey
work, even with a measure like Szyrmer's. That is, when identifying sectors for
survey work, we really only want to determine their relative sensitivity to a 'normal'
perturbation in imports by using sectors, since this set of imports is not well
estimated via RPCs. Therefore, an alternative strategy for identifying sectors that
are ripe for superior data is to identify the sectors that are most likely to induce
changes in the Leontief inverse. The main approaches in the literature that meet
this need are the tolerable-limits approach and the structural-matrix-errors
approach.
Schintke and Staglin (1988) extended Yershofs (1965) tolerable-limits approach to determine the sensitivity of each sector's output to a change in a sector's
total intermediate input proportion. Looking from a similar angle with a similar
approach, Sell's (1980) analytical research reveals a strong direct relationship
between the size of intermediate inputs and the potential for a sector to generate
error in its output multipliers.
In Section 4.2, it was mentioned that West (1982) used Evans's (1954)
algorithm to examine the effect of coefficient error on the Leontief inverse; this can

284 M. L. Lahr

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be used to measure the 'combined effect' of error in several coefficients at once.

Hence, this measure extends West's (1981) work in the same way that Schintke
and Staglin (1988) extended Yershofs (1965) tolerable-limits approach to examine the effects of changes in intermediate inputs. Both the Schintke and Staglin
(1988) and modified West (1982) measure would need to be modified to reflect
'typical' model performance. By this it is meant that a set of weights like those
suggested by Hazari (1970), McGilvray (1977), and Rao and Harmston (1979) for
calculating total linkages should be used. Of the two measures of Schintke and
Staglin (1988) and West (1982), Lahr (1992) has suggested that West's (1982)
has more appeal since it accounts for changes in all sectors due to a change in the
proportion of intermediate inputs, while Schintke and Staglin's measure identifies
the effect on only one sector
6. The Problem of Sales and Purchases Discrepancies

6.1. The General Reconciliation Problem

It is unlikely that data collected through surveys and other 'superior' sources will
be of the same quality. Hence, some form of reconciliation will have to be
performed, especially if the desire is to keep the regional I 0 model as detailed as
possible.
In part, the need for reconciliation can arise because there are two ways of
observing transactions. First, they can be viewed from the seller's point of view:
'How much do I sell to each sector?' This point of view yields what is better known
as 'rows-only' (or 'sales') estimates of the set of transactions. Alternatively, data
from each establishment may be collected concerning their purchases. Such
information yields 'columns-only' (or 'purchases') estimates. For a given cell, it
would be highly unlikely that these two estimates would be identical. Hence, if
superior data are obtained and they are observed in these two very different ways,
a reconciliation procedure is required.
Differences in the credibility of data sources have been evident in regional
analysis even as early as the first survey-based regional model ever recorded. In his
survey-based study of Puerto Rico, Gosfield (1955, pp. 350-351) shows that
secondary government data, generally considered to be a good source for legitimate control totals, reported imports of shell products to be 250% lower than data
obtained via highly credible primary sources for the pearl-button industry alone,
which represents only a fraction of all users of shell products.
In this case, the reconciliation problem was easily solved. "The Department of
Commerce could conveniently be ignored, since it applied at the open end of input
flows. Furthermore the alternative value had been obtained from corporate accounting records" (Gosfield, 1955, p. 351). Although reconciliation can always be
achieved by ignoring a data source, such action cannot be rationalized so easily.
6.2. Data Source Credibility and the Reconciliation Problem

The literature reviewed by Jackson and West (1989) generally assumes that it is
possible to obtain perfect information or that all information is of similar quality.
But what is to be done when the credibility of data sources is not so clear? It is this
part of the reconciliation problem that fired the debate between Gerking (1976a,
1979), Miernyk (1976, 1979) and Gerking and Pleeter (1977). Miernyk (1970,

Hybria' Approach to Constructing Input-Output Models 285

p. 18), a proponent of more subjective measures of I 0 data sources, suggests using
a reliability quotient, which is based upon

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(1) the proportion of sales accounted for by the sample, (2) reliability of
the sector control total, (3) homogeneity of output within the sector
[. . .I, (4) the representativeness of the sample as determined by the t and
F tests, and (5) the judgment of interviewers. [. . .] By proceeding from
the cell with the highest reliability quotient to the cell with the lowest, the
range of possible entries in the least reliable cells was systematically
narrowed.
Gerking (1976a,b, p. 33) was disturbed by the impreciseness of the term 'reliability' when referring to an I 0 coefficient estimate. Does it "refer to its mean, its
variance, its mean and variance, or something else?" For this reason, Gerking was
also critical of the procedure outlined by Jensen and McGaurr (1976), which used
subjectively determined reliability weights with an RAS-type adjustment procedure. In both cases, however, he was particularly 'distressed' by the idea of
allowing interviewers to influence the reconciliation procedure. Hence, he employed an alternative reconciliation procedure that uses two-stage least squares
with a criterion of minimum variance.' In so doing, he developed (1976b, p. 41)
"an objectively determined reliability weight".
Gerking, however, had the luxury of starting with the data that produced the
final 'rows-only' and 'columns-only' estimates of the 1965 West Virginia model.
H e did not know how dirty the basic data had been. Even in the case of a full
census, there may be errors due to the nature of the survey tool, survey subject or
the data collector. As Isard and Langford (1971, p. 132) note, "surely there will
always be some items whose consumption is so minor that the investigator judges
that it is not worthwhile to spend the necessary time and effort to collect and
process information on them". They also suggest that non-parallel accounting
procedures between the establishment being interviewed and the study can be
problematic, citing the example of newspaper advertising (p. 132):
Too frequently, the direct purchases of advertising from newspapers are
reported by an establishment not as newspaper advertising but rather as
expenditures under such general categories as advertising, public relations, or communications. Consequently, the recorded inputs of
newspapers advertising by consuming sector are greatly underestimated.
Other problems are that wholesale trade and retail trade are accounted for in a
model only by their margins. Hence, the products that these sectors deliver to
customers are not included in their technology. Therefore, although an establishment might purchase goods from a local wholesaler or retailer, the goods the trader
sells should be accounted as coming from a goods-producing sector in another
region. Hence, an establishment might just allocate the purchase as one from a
trader in its books, making the exact nature of the purchase nearly impossible to
account for properly. Isard et al. (1966-68) suggest other reasons for imbalances,
including discriminatory pricing practices and different pricing systems between
producers and consumers.
Needless to say, the problems caused by such sources of imbalance cannot be
taken into account by a purely objective measure like the one developed by
Gerking. Hence, something along the lines of Miernyk's (1970) reliability quotient

286

M. L. Lahr

or Jensen and McGaurr's (1976, p. 62) reliability weights9 is preferred. In fact,

Lahr (1992) used RAS with variable tolerance limits depending upon the quality
of the data sources.

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6.3. Sampling and the Reconciliation Problem

Even assuming perfect information from questionnaires received, in the case of

non-exhaustive sampling for each sector it is extremely unlikely that total sales to
sector j from sampled sector-i establishments would equal sampled sector-j establishment purchases from i. This was probably the case for shell product imports in
Puerto Rico. Generally, national censuses are unable to sample exhaustively.
Hence, a known subsample, comprised only of the major establishments producing
pearl buttons, covered a greater proportion of imported shell products than did the
monthly census of imports and exports covered by the US Department of
Commerce, which would normally be expected to be highly accurate for an insular
economy.
Hence, one possible way of developing a procedure to reconcile sales and
purchase differences is to recognize explicitly that sampling was undertaken. T o do
so requires that the sales and the purchase values observed for a particular cell are
just two of the possible values that can be observed through the cell's probability
density function. It is this that Leontief (1955, p. 13) referred to when he wrote
Mathematical statistics will, however, become very useful, nay indispensable . . . after all the principal parts of the analytical structure have been
erected and one can turn to a more precise fitting and mutual adjustment
of its originally rough-hewn components.
A large, although highly unconnected, body of literature investigates the stochastic1
probabilistic nature of I 0 models (see Jackson and West (1989) for a recent and
thorough review). Suffice it to say, at this point, that, if we can assume a
probability density functions for a given cell of an I 0 model and have some
information about its moments, we might be able to obtain more accurate models.
Unfortunately, the probability density functions of I 0 coefficients are, as yet,
unknown.
7. Sectors with High Technology Variation Across the Nation
As noted earlier, Miernyk (1970, p. 306) believes that "geographic specialization
tends to produce variation in regional technical coefficients around the average
coefficients for a given sector of the national economy". Of course, certain sectors
display more variation in technology than others. Also as noted earlier, Miernyk
(1968, p. 5 1) warns us that it is variation in the industry mix of a given sector that
primarily leads to deviations from this national average coefficient. This would
again lead us to the conclusion that we should maintain as much detail as possible
in the non-survey model.
Even if a high degree of detail (say 500 sectors) is maintained in the non-survey
model, some major deviations between regional and national technology will still
remain. Regional sectors that are likely to be quite distinct from their national
counterparts are those that are resource-based or which, even despite very great
detail in the non-survey model, are not sufficiently disaggregate to display low
variance in their technology. It is the purpose of this section to identify those

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Hybrid Approach to Constructing Input-Output Models 287

sectors of the economy that need to be surveyed simply because the sector's
technology varies considerably by location.
Soil and climate conditions are location-specific and greatly affect the nature
and productivity of agricultural enterprises. Geologic conditions are so locationspecific that, for a given mineral, different grades can be obtained within a radius
of a few feet, let alone a different county or state. These different grades require
different extraction technology and can be demanded by entirely different markets.
In addition, even a given grade of a mineral can require different extraction
technology by virtue of the depth of cover, as well as the thickness and width of
the mineral's vein. Of course, the agriculture and extractive industries are also
traditionally very aggregate sectors in national I 0 models. Hence, the variation in
the technologies of these resource-based sectors would be expected to be exceptionally high from region to region.
Other industries that vary greatly from region to region even at the detailed
level are those that are labeled as 'miscellaneous' or that include myriads of
industries that are 'not elsewhere classified'. These sectors do not have wide
variance in their technology because of their location, but because of the wide mix
of establishments that they embrace, they are not expected to be the same for any
two regions.
Unfortunately, the proportion of sectors in a region that comprise the set
mentioned as being worthy of survey work due to their probable technology
variance at the national level is quite large, especially as the level of sectoral detail
increases. None the less, the need to conduct a full survey (i.e, one that asks about
the sectors' full sets of requirements) on these sectors would diminish dramatically
after the first survey, assuming that periodic updates of such models were made.
8. Conclusions and Implications

T h e purpose of this survey is to make researchers aware of the state of regional

hybrid model construction. The studies of West (1990) and Boomsma and
Oosterhaven (1992), which represent the state of the art, lay out only very general
guidelines. Hence, opportunities abound to advance the development of such
models.
This paper has pointed out that when producing a relatively accurate regional
I 0 model, some sectors (those that have technologies that vary radically from the
nation's average) will need the full range of superior data so that their technology
is properly represented, at least the first time that a model is produced for a region.
These sectors are generally those that are resource-based. Other sectors that vary
radically from region to region are those traditionally considered to be a part of
final demand: household consumption, and local, state and federal government.
The importance of obtaining superior data for other sectors of the region depends
on the relative magnitude of any effects induced by them for all likely applications
of the model. 'Importance' means the 'directness' of the effects induced by the
sector (Regional Science Research Institute, 1975; Ashcroft & Swales, 1982;
Beemiller, 1990) as well as the 'keyness' of the sector to the regional economy.
'Directness' relates to the finding of the Regional Science Research Institute
(1975); that greater accuracy in impacts can be gained by surveying establishments
that receive first-, second- and third-round effects.'' Because we can only know the
active sectors in a round if we know the specific sectoral disturbance that is
effecting a change in the economy, directness is an issue of single-purpose models

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288

M. L. Lahr

only. 'Keyness' means the relative rank of the sector in terms of the size of its total
linkages.
T h e literature suggests that since regional trade patterns vary radically over
time, two critical pieces of information that should be obtained for every sector for
which superior data are obtained are the proportion of imports that they use and
the proportion of their output that is sold locally. Getting good local data on the
labor income attributed to each sector is also important, but this generally can be
obtained from secondary sources. Hence, when identifying sectors for targeting
survey work, it is important to keep an eye on those that are most sensitive to
changes in imports and the business cycle."
Hybrid models rely on an accurate set of non-survey regional I 0 accounts. T o
account properly for regional industry mix and regionalization, it appears that a
more detailed model would be best. Despite the recent set of simulations reported
by Stevens and Lahr (1992), which supports this view, more empirical work needs
to be performed on this and other issues on the aggregation of regional I 0 models.
In addition, work by Szyrmer and Lahr (1993) questions whether traditional
rows-only regionalization approaches (RPC estimates) are sufficiently accurate.
Using a generalized RPC formula, they point out a new alternative that may have
some promise. None the less, they too suggest that more empirical testing of their
new measure must be performed.
Probably the most open arena in the development of hybrid models is that for
targeting portions of models for insertion of superior data. Two basic approaches
have appeared in the literature: the tolerable-limits approach and the structuralmatrix-errors approach. The latter, developed by Evans (1954) and put forward by
West (1982) for identifying error-sensitive cells of 10 models, appears to have the
most promise. The point made in this paper is that more value should be placed
upon examining the sensitivity of entire sectors to changes in import proportions.
T o achieve this end, measures such as those of West (1982) and Schitnke and
Staglin (1988) need to be modified by a vector of sectoral weights.
In combining data from different sources, a reconciliation process must be
undertaken. Most of the hybrid model literature has underplayed the importance
of this step. Fortunately, a very detailed debate occurred some time ago on this
issue in the literature on survey-based regional models. The debate was between
mechanical and expert-opinion approaches to handling the reconciliation problem.
Although it appears no accord was reached in this debate, indirectly much
guidance was given to constructors of hybrid models. None the less, more research
on this topic is also needed.
Other questions not dealt with in the literature still must be addressed. How
can we determine when we have a sufficiently accurate hybrid model, so that we
need not continue to search for more superior data? Which measure(s) is (are) best
for measuring the accuracy of I 0 models? If survey work is required, which
establishments in a sector should be targeted for survey work? Other than
resource-based industries, is there other readily available information by region
that could inform us of the degree of difference between the region's and the
nation's technologies by industry? These are but a few of a myriad of questions
that should be answered by researchers. A body of literature is still only starting to
form on hybrid regional I 0 models. And, as has been made obvious from the
above paragraph, much basic work still needs to be done before the construction
of such models has reached a mature stage. I hope that this survey of the literature
will encourage others to join in the venture.

Hybrid Approach to Constructing Input-Output Models 289

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Notes
1. Jensen et al. (1979, p. 42) refer to this as 'variable interference', i.e. 'the extent that [the
input-output table constructor] might exercise discretion regarding the amount of superior data
from survey and other exogenous sources, to be inserted in the tables".
2. For an example of some recent work using such models, see Israilevich and Mahidhara (1991).
3. Later, Morimoto (1971) developed a more thoughtful general piece on weighting sectors in
aggregation.
4. "There is no way of measuring differences between 'true' coefficients and those calculated from
survey data, since the true coefficients must remain forever unknown" (Miernyk, 1976, p. 54).
5. At the 1988 International Conference on Regional Input-Output Modeling in West Virginia, Paula
Young of the US Bureau of Economic Analysis reported that people in the US might be able to
look forward to better regional data in the coming decades, at least for census data collected for
the US national input-output table. She also pointed out that the number of questions that the US
census asks of establishments must remain limited, however, so that the survey response rate does
not suffer. In 1991, however, the US Office of Management and Budget told US I 0 modelers to
expect better environmental and international data at the expense of domestic regional data. So
now is the time, if it is not already too late, for those interested in more regional US data to speak
out.
6. Fortunately, fairly accurate regional labor income data can usually be generated or obtained from
secondary sources in most developed countries. Accurate regional household consumption data
generally require survey work, however.
7. This term was coined by Perroux (1955). Rasmussen actually used the term 'power of dispersion'
to describe his measure.
8. Gerking decided, admittedly arbitrarily, that it would be best to define 'reliability' of a reconciled
estimator in terms of its variance only. The smaller the variance, relative to other consistent
estimators within the same class, the more reliable the estimator.
9. Rather than only produce estimates of reliability by sector, Jensen and McGaurr (1976) produced
them on a cell-by-cell basis for both the 'rows-only' and 'columns-only' estimates. The sums of the
reliability weights from the two approaches for any given cell were developed so that they equaled
unity. In this way, a new weighted-average cell value was calculated. This value was subsequently
adjusted so that the known value of total regional output was maintained.
10. This refers to the rounds of the power-series expansion of the Leontief inverse (Miller & Blair,
1985, p. 90; Stevens, 1990).
11. Firms tend to overemploy at the beginning of a downturn in an economy and underemploy in an
upswing.

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Yershof, E. B. (1965) Chapter 3 of Planning Methods of the Input-Output Proportions (Moscow).