Professional Documents
Culture Documents
Sergio Parrinello
University of Rome La Sapienza
(August 2005, revised February 2007)
Vendible commodities are usually grouped into two categories: goods and
services. The following widespread characterization of services has been
questioned: (1) services are intangible goods, and (2) the provider and the
user of a service must be spatially contiguous.1 Hill (1999) has convincingly
stressed that services cannot be assimilated to intangible goods. Parrinello
(2004) has argued that a useful distinction between goods and services does
not imply a spatial contiguity between the supplier and the user of services,
but a different timing between the provider activity and the user activity. In
this note we shall formalize this distinction in the framework of inputoutput
analysis.
Goods can be produced in one location during a certain time period, then
accumulated during another period and perhaps in a different place and
finally delivered to their users in still another location. However, some ser-
vices, e.g. informational services on line, do not require a geographical close-
ness between their provider and user. Instead a useful distinction between
goods and services refers to capital and time: produced goods must be first
produced and then consumed as goods; in contrast a produced service is an
activity that is produced and simultaneously used by a production or final
consumption process. We can say that the provider process and the user
process are parallel in the case of services, whereas they are serial in the case
of goods. This seems to be an odd distinction if we think of many activities
commonly called services. For instance, the useful result of a service process
such as cleaning or haircutting seems to accrue only at the end of a
production period (when a certain person is served because his car has been
1
Such a geographical contiguity is frequently mentioned as a constraint that explains the
different mobility of services versus goods in international trade and contrasts with the features
of informational services on line.
For the sake of illustration, let us simplify the DOSSO (1958) version of the
dynamic Leontiev model consistently with the definition of goods and ser-
vices illustrated above. We assume a simple n-commodity economy in which
each commodity is produced by a single process (industry) and goods are
non-storable. Therefore we confine the analysis to a simple case of circulating
capital, which rules out the existence of joint production and fixed capital.
All processes have the same duration and a process is conceived as a black
box where quantities of goods are observed at the beginning and at the end of
each period. Instead the flows of services are reckoned as simultaneous inputs
and outputs during the period. The time profile of the quantities of goods and
services within the period is not specified.
Let the n commodities be goods 1, 2, . . . , m and services m + 1, m + 2, . . . ,
n. The n-square inputoutput matrix can be written in the partitioned form:
Gg Gs
S Ss
g
where:
Let us denote:
xs (t ) = Sg x g (t ) + Ss xs (t ) + ys (t ) (2)
L(t ) = l g xg (t ) + l s xs (t ). (3)
Ggxg(t) + Gsxs(t) is a vector of capital goods available at the start of period t
and used as circulating capital during the period. Instead Sgxg(t) + Ssxs(t) is a
vector of service flows produced during period t and used by the n industries
during the same period.
Let pg, ps be column-vectors of not discounted prices goods and services; w
the wage rate and r the own rate of interest on the numeraire.
The intertemporal equilibrium price equations:
pg (t + 1) = (1 + rt )G Tg pg (t ) + STg ps (t ) + l gT w(t ) (4)
COMMENTS
(a) The quantity equations admit stocks of goods (circulating capital), but
not stocks of services and they show that a service cannot be accumulated
as such. For example, the production of electricity in a certain period
provides a service that seems to be capable of being accumulated, because
electricity can be used to charge a battery that is apt to supply electricity
in the following periods. However, saying that in this case the service is
accumulated is not consistent with the term accumulation used in eco-
nomics. One Kwh of electricity cannot be accumulated as a ton of corn.
The latter maintains its physical identity of good when it is stored,
although it can be subjected to depreciation. Instead an accumulated
Kwh loses the identity of service because, using the words of Adam
Smith, it fixes itself into a good (a charged battery). Afterwards, the latter
can be used, jointly with other means of production, to provide further
electric energy, but such a service may not possess the same character-
istics of the amount of electricity used to charge the battery (e.g. perfectly
continuous current instead of alternate current converted in continuous
one).
(b) The same dated price is attributed to the output and to the input of a
service in the price equations (4) and (5). This is a sign of the simulta-
neous production and consumption of a service. If we assume that all
services are paid ex ante (i.e. at the beginning of the period), the price
equations should be written:
pg (t + 1) = (1 + rt )[G Tg pg (t ) + STg ps (t ) + l Tg w(t )] (4)
This special case shows that a pure service economy is not capitalistic,
although it might possess an advanced technology. It is a labour
Let us assume that the inverse matrix (I - Ss)-1 exists and is semipositive. By
1
substitution of the solution to equation (2), x s (t ) = ( I Ss ) [ Sg x g (t ) + y s (t )] ,
into equation (1) we obtain the following equation where only quantities of
goods are represented:
x g (t 1) = Ax g (t ) + Y(t ) (7)
STEADY STATES
x g = (1 + g )G g x g + Gs xs + c g (1*)
xs = (1 + g )Sg x g + Ss xs + c s (2*)
where g is the uniform and constant rate of growth and cg, cs are consumption
column-vectors of goods and services.
The price equations (3) and (4) become
pg = (1 + r )G Tg pg + STg ps + l Tg w (4*)
CONCLUSIONS
REFERENCES
DOSSO (Dorfman, R., Samuelson, P., Solow, R.) (1958): Linear Programming and Economic
Analysis, McGraw-Hill, New York.
Hill, T. P. (1999): Tangibles, intangibles and services: a new taxonomy for the classification of
output, Canadian Journal of Economics, 31, April, pp. 42647.
Parrinello, S. (2004): The service economy revisited, Structural Change and Economic Dynam-
ics, 15 (4), pp. 381400.
Sergio Parrinello
Dipartimento di Economia Pubblica
Universit degli Studi di Roma La Sapienza
Piazzale Aldo Moro 5
I-00185 Roma
Italia
E-mail: sergio.parrinello@uniroma1.it