Geoscience Reference
In-Depth Information
nested constant returns to scale production technologies and given input prices.
Household commodity demands are modeled via a representative utility-
maximizing household. Units of new industry-specific capital are assumed to be
cost minimizing combinations of commodities sourced from the local region, the
rest of the U.S. and overseas. Imperfect substitutability between local, rest-of-U.S.
and foreign varieties of each commodity are modeled via CRESH functions.
7
Inter-
regional and foreign export demands for local commodities are modeled via
commodity- and destination-specific constant elasticity export demand schedules.
The model includes the consumption of commodities by state and federal govern-
ment, funded by direct and indirect taxation instruments. Commodity markets are
assumed to clear and to be competitive. Purchasers' prices differ from basic prices
by the value of indirect taxes and margin services.
Three dynamic processes distinguish LA-DYN from ORANI-LA: two describ-
ing stock/flow relationships between capital and investment, and between popula-
tion and migration; and one describing a process of lagged adjustment in regional
wages to changes in regional labor market conditions. Broadly, these mechanisms
draw together the investment theory of Dixon and Rimmer (
2002
), and the regional
labor market and migration theory of Giesecke and Madden (
2013
). Before describ-
ing these mechanisms, we first distinguish two types of dynamic simulation:
baseline and counterfactual (Dixon and Rimmer
2002
; 15). The baseline simulation
is a business-as-usual forecast of the LA County economy. The counterfactual
simulation is identical to the baseline simulation in all respects other than the
addition of shocks describing the issues under analysis (in this case, chlorine
release). The distinction between baseline and counterfactual is important for two
reasons. First, the theory governing the regional employment rate relies on the
distinction. Second, we present model results as percentage deviations in the values
of variables in the counterfactual simulation away from their corresponding values
in the baseline.
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16.3.2 Investment and Capital Accumulation
LA-DYN carries the assumption that investment undertaken in industry
i
in year
t
becomes operational at the beginning of year
t+1
. That is:
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This specification allows us to use a broad range of substitution possibilities among inputs
(Hanoch
1971
).
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In this paper we are concerned with reporting the impact of a chlorine gas attack, not with the
baseline forecast for the LA economy. As such, we report all results in terms of deviations in the
values of variables in the attack scenario away from their baseline (no attack) forecast values.
While details of the baseline are unimportant for the present application, this need not be the case
for all simulations. Dixon and Rimmer (
2013
) note that baseline details can be important when:
(1) the aim is to supply CGE forecasts to business or government; (2) the counterfactual shocks are
heavily weighted towards very fast- or slow-growing sectors; (3) the focus is an evaluation of the
adjustment costs of policy change. These are not relevant considerations in the present application.
