Allowing for uncertainty in exogenous shocks to CGE models

the case of a new renewable energy sector

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Abstract

The paper explores the importance of allowing for uncertainty in the magnitude of exogenous shocks in 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.
Original languageEnglish
Pages (from-to)509-527
Number of pages19
JournalEconomic Systems Research
Volume29
Issue number4
Early online date10 Apr 2017
DOIs
Publication statusPublished - 2017

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Renewable energy
CGE model
Uncertainty
Exogenous shocks
Energy sector
Spatial correlation
Analytical model
Random variables
Scotland
Costs

Keywords

  • CGE models
  • uncertain shocks
  • onshore wind
  • renewable energy
  • systematic sensitivity analysis

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)

Cite this

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title = "Allowing for uncertainty in exogenous shocks to CGE models: the case of a new renewable energy sector",
abstract = "The paper explores the importance of allowing for uncertainty in the magnitude of exogenous shocks in 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.",
keywords = "CGE models, uncertain shocks, onshore wind, renewable energy, systematic sensitivity analysis",
author = "Euan Phimister and Deborah Roberts",
note = "Funding Deb Roberts acknowledges funding support from the Scottish Government’s Rural and Environmental Science and Analytical Services Division (RESAS) under Theme 8 ‘Vibrant Rural Communities’ of the Food, Land and People Programme (2011–2016).",
year = "2017",
doi = "10.1080/09535314.2017.1309520",
language = "English",
volume = "29",
pages = "509--527",
journal = "Economic Systems Research",
issn = "0953-5314",
publisher = "Routledge",
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T1 - Allowing for uncertainty in exogenous shocks to CGE models

T2 - the case of a new renewable energy sector

AU - Phimister, Euan

AU - Roberts, Deborah

N1 - Funding Deb Roberts acknowledges funding support from the Scottish Government’s Rural and Environmental Science and Analytical Services Division (RESAS) under Theme 8 ‘Vibrant Rural Communities’ of the Food, Land and People Programme (2011–2016).

PY - 2017

Y1 - 2017

N2 - The paper explores the importance of allowing for uncertainty in the magnitude of exogenous shocks in 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.

AB - The paper explores the importance of allowing for uncertainty in the magnitude of exogenous shocks in 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.

KW - CGE models

KW - uncertain shocks

KW - onshore wind

KW - renewable energy

KW - systematic sensitivity analysis

U2 - 10.1080/09535314.2017.1309520

DO - 10.1080/09535314.2017.1309520

M3 - Article

VL - 29

SP - 509

EP - 527

JO - Economic Systems Research

JF - Economic Systems Research

SN - 0953-5314

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