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CGE assumptions under scrutiny: uncertainty in the ethanol promotion policy in Mexico

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  • Alejandra Elizondo
  • Roy Boyd

Abstract

Based on a CGE exercise of a subsidy to initiate ethanol production in Mexico, we use Monte Carlo simulations for consumer demand elasticities and ethanol cost estimates. The analysis provides three conclusions: when markets vary smoothly and predictably, Monte Carlo methods can then help to gauge the actual probability that a given program will achieve a desired outcome. Second, secondary markets may display little or no sensitivity to these parameter variations. Finally, a ‘razor’s edge’ outcome with no positive benefits if a critical parameter falls below some critical value, reveals that an economic policy may not be conducive to ‘fine tuning’ by marginal adjustments.

Suggested Citation

  • Alejandra Elizondo & Roy Boyd, 2019. "CGE assumptions under scrutiny: uncertainty in the ethanol promotion policy in Mexico," Applied Economics, Taylor & Francis Journals, vol. 51(25), pages 2744-2753, May.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:25:p:2744-2753
    DOI: 10.1080/00036846.2018.1558355
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