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There are two motivations to calibrate the models. First, it is possible to visualise and to
elucidate functional relationships, which can also be derived generally. The second aim is to qualify
effects, which are ambiguous in general. For these results to have a weight it is important that the
assumed functional forms and parameters are plausible. On the other hand, the functions should be as
simple as possible.
The following functions are assumed:
utility function |
, |
|
|
production function |
, |
where
is a positive parameter. Both functions have the assumed properties, i.e. positive first
derivatives, and negative second derivatives with respect to consumption and employment,
respectively6. The cross-derivative of the production function is
positive, so that infrastructure has a positive effect on the productivity of labour. The labour
demand function can be obtained by partially differentiating
, and rearranging:
.
Both, production function and utility function, have mainly been chosen due to their simplicity.
If the indicated functions are employed, the wage rate can be calculated by insertion in
equation (6):
and, using equation (1), labour demand is
The exogenous parameters have the values given table 1 (
in models BC and BR and
in models TC and TR).
Table 1:
parameter values for the calibration
parameter |
value |
parameter |
value |
 |
 |
 |
 |
 |
 |
 |
0.05 |
 |
0.27 |
 |
 |
 |
 |
 |
0.6 |
|
To assess the effects of a regionalisation of the UI´s budget, profits and expected utilities of firms and workers from both regions have to be derived. Then, the difference between the respective values with a central and with a regional UI indicates, which of the alternatives an agent prefers. If it is positive, central UI is preferable, and vice versa.
Subsections
Next: Models TC and TR
Up: Regional unemployment insurance
Previous: Regional UI, endogenous benefit
Helge Sanner: Regional Unemployment Insurance, Potsdam 2001