Page 125 - Challenges in Corrosion Costs Causes Consequences and Control(2015)

DATA COLLECTION AND ECONOMIC ANALYSIS 103

The U.S. economy was divided into 130 industrial sectors in the input model. For each
industrial sector, experts were asked to estimate the costs of corrosion prevention such
as the use of coatings, inhibitors, and the cost of repair and replacement of corroded
parts.
The input–output (IO) analysis model was invented by Wassily Leontief who was
awarded the Nobel Prize in 1973. The IO model is a general equilibrium model of an
economy showing the extent to which each sector uses inputs from the other sectors
to produce its output, and thus showing how much each sector sells to each other
sector. The IO model shows the increase in economic activity in every other sector
that would be required to increase the net production of a sector by, for example, $1
million. In the case of $1 million worth of paint required for corrosion prevention, the
IO model would show the total activity in all sectors would amount to the $1 million
worth of paint. The IO matrix was constructed by the U.S. Department of Commerce
on the basis of the census of manufacturers in 1973 and represents the actual structure
of the U.S. economy at that time. The IO model has been very invaluable for planning.
The IO framework has also been useful in estimating the total economic activity that
will result from net additional purchases from a sector and the total economic loss
because of closure of an industry.
Economic IO analysis accounts for direct (within the sector) and indirect (within
the rest of the economy) inputs to produce a product or service by using IO matrices
of a national economy. Each sector represents a row or a column in the IO matrix.
The rows and the columns are normalized to add up to one. When selecting a column
(industrial sector P) the coefficients in each row would tell how much input from
each sector is needed to produce $1 worth of output in industry P. For example, an
IO matrix might indicate that producing one dollar worth of steel requires 15 cents
worth of coal and 10 cents of iron ore. A row of matrix specifies to which sectors the
steel industry sells the product. For example, steel might sell $0.13 to the automobile
industry and $0.06 to the truck industry of every dollar of revenue.
Elements were identified within the various sectors that represented corrosion
expenditures such as coatings for pipelines. The coefficient of coatings for the steel
pipelines was modified so that, for instance, pipelines spend nothing on coatings,
where the purpose of coatings is to prevent corrosion. After the coefficients in the
steel pipeline column are modified, the column is normalized to add to one. This
new matrix represents the world without corrosion. With the new matrix, the level of
resources used to produce GNP in a world of corrosion would result in higher GNP
than in a world without corrosion.
The Battelle-NBS study collected data on corrosion-related changes in the
following:

1. Resources (materials, labor, energy, value added required to produce a product
or service).
2. Capital equipment and services.
3. Replacement rates for the capital stock of capital items.
4. Final demand for the product.