Geoscience Reference
In-Depth Information
K
i
,
tþ
1
¼
K
i
,
t
1
ð
D
i
Þþ
I
i
,
t
ð
16
:
1
Þ
where
K
i
,
t
is industry
i
's capital stock in year
t
;
D
i
is industry
i
's depreciation rate; and,
I
i
,
t
is the quantity of new capital created for industry
i
during year
t.
Investment is a function of the expected rate of return on capital, via:
K
i
,
tþ
1
=
K
i
,
t
1
¼
F
i
,
t
EROR
i
,
t
½
ð
16
:
2
Þ
where
EROR
i
,
t
is the expected rate of return on investment in industry
i
in year
t;
and
F
i
,
t
[
] is an increasing function of the expected rate of return.
In implementing (Eq.
16.2
), we assume that
F
i
,
t
takes the inverse-logistic form
described in Dixon and Rimmer (
2002
, pp. 190-195). This is the functional form
used in the USAGE model, whose investment specification is discussed in Dixon
and Rimmer (
2005
).
∙
16.3.3 Regional Wage Adjustment
LA-DYN allows for limited deviations in the short-run regional wage away from its
baseline forecast values. With short-run regional populations also sticky (see
below), short-run labor market pressures are mainly manifested as short-run
deviations in the regional employment rate. More explicitly, the path of the regional
wage in the chlorine attack simulation is governed by:
W
ðÞ
t
W
ðÞ
t
W
ðÞ
W
ðÞ
ER
ðÞ
t
ER
ðÞ
t
=
1
¼
t
1
=
t
1
1
þ
α
=
1
ð
16
:
3
Þ
where
W
t
(
B
)
and
W
t
(
C
)
are year
t
values for regional nominal wages in the baseline and
counterfactual (chlorine) simulation respectively
ER
t
(
B
)
and
ER
t
(
C
)
are regional employment rates (1—the unemployment rate) in the
baseline and counterfactual simulations respectively; and
α
is a positive parameter.
With (Eq.
16.3
) activated in the chlorine simulation, the deviation in the regional
wage grows (declines) as long as the regional employment rate remains above
(below) its baseline level. Equation
16.3
represents an implementation at the
regional level of the national sticky wage mechanism described in Dixon and
Rimmer (
2002
, p. 205) and implemented in the USAGE model of the U.S. We
choose a value for
consistent with that in USAGE.
9
In practice, this ensures that
α
9
We set
α
¼0.6.
