Allowing for uncertain and asymmetric policy shocks: a CGE analysis of the impacts of on-shore wind farm developments in north east Scotland

This paper explores the extent to which a new on-shore winds sector, gives rise to rural economic benefits taking into account that, a priori, the eventual size of the sector (the shock to the model) is uncertain and that the underlying probability distribution of the shock may not be symmetric. A regional CGE model is developed and results from three analyses are compared: one assuming certainty in the size of the sector, one a symmetrically distributed shock, the other an asymmetric distribution of the shock. The findings suggest that the wider rural economic impacts are relatively limited, even when the additional income from the sector is re-invested locally. However the size of impacts is sensitive to the assumed distribution of the shock. In particular, treating the size of the sector as known with certainty appears to over-estimate impacts relative to an uncertain but symmetric size of shock, but underestimate impacts relative to the asymmetric case. The implications for testing the robustness of future CGE model applications are considered.