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Allowing for uncertainty in exogenous shocks to CGE models: the case of a new renewable energy sector

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  • Euan Phimister
  • Deborah Roberts

Abstract

The paper explores the importance of allowing for uncertainty in the magnitude of exogenous shocks in Computable General Equilibrium (CGE) models. The shock examined is the introduction of a new onshore wind sector in North East Scotland. A simple analytical model is developed to show how, a priori, the size of the new sector (the model shock) is uncertain and asymmetrically distributed as a result of spatial correlation in costs and returns across potential development locations. The importance of allowing for this uncertainty is tested by comparing the results from a CGE model where the sector size is assumed known with certainty to those from a model where the sector size is a random variable with an asymmetric distribution. The results show the extent to which allowing for uncertainty can influence the magnitude of estimated impacts with some variables more sensitive to the uncertainty than others.

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  • Euan Phimister & Deborah Roberts, 2017. "Allowing for uncertainty in exogenous shocks to CGE models: the case of a new renewable energy sector," Economic Systems Research, Taylor & Francis Journals, vol. 29(4), pages 509-527, October.
    • Handle: RePEc:taf:ecsysr:v:29:y:2017:i:4:p:509-527
    DOI: 10.1080/09535314.2017.1309520
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    Cited by:

    1. Mukashov, Askar & Breisinger, Clemens & Engelke, Wilfried & Wiebelt, Manfred, 2022. "Modeling conflict impact and postconflict reconstruction: The case of Yemen," Economic Systems, Elsevier, vol. 46(1).
    2. Ziesmer, Johannes & Jin, Ding & Mukashov, Askar & Henning, Christian, 2023. "Integrating fundamental model uncertainty in policy analysis," Socio-Economic Planning Sciences, Elsevier, vol. 87(PB).
    3. Johannes Ziesmer, 2024. "Identifying key sectors of sustainable development: A Bayesian framework estimating policy‐impacts in a general equilibrium," Agribusiness, John Wiley & Sons, Ltd., vol. 40(2), pages 458-483, April.
    4. Karen Turner & Antonios Katris & Abdoul Karim Zanhouo & Christian Calvillo & Julia Race, 2023. "The potential importance of exploiting export markets for CO2 transport and storage services in realising the economic value of Scottish CCS," Local Economy, London South Bank University, vol. 38(3), pages 264-281, May.
    5. Rocco, Matteo V. & Guevara, Zeus & Heun, Matthew Kuperus, 2020. "Assessing energy and economic impacts of large-scale policy shocks based on Input-Output analysis: Application to Brexit," Applied Energy, Elsevier, vol. 274(C).
    6. Mukashov, A., 2023. "Parameter uncertainty in policy planning models: Using portfolio management methods to choose optimal policies under world market volatility," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 187-202.
    7. Qu, Yang & Hooper, Tara & Swales, J. Kim & Papathanasopoulou, Eleni & Austen, Melanie C. & Yan, Xiaoyu, 2021. "Energy-food nexus in the marine environment: A macroeconomic analysis on offshore wind energy and seafood production in Scotland," Energy Policy, Elsevier, vol. 149(C).
    8. Mukashov, Askar & Jin, Ding & Henning, Christian & Hedtrich, Johannes, 2019. "Estimation of Growth Elasticities in the General Equilibrium Framework under Model Uncertainty," Conference papers 333081, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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