Essays on the demand for ethanol in the United States: willingness to pay for E85

Kenneth Liao

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This dissertation contains three studies that estimate the distribution of willingness to pay (WTP) for E85 as a substitute for E10 among flex motorists in the United States. The results are vital for estimating the demand for ethanol beyond the blend wall and for analysis of the Renewable Fuel Standard. The first study attempts to estimate the distribution of preference for E85 from data generated by a survey of E85 stations in Minnesota. The study uses an extensive sample of recent observations, but estimates of the WTP distribution vary substantially depending on model specification. The conclusion is that the data are not suitable to estimate the distribution of WTP for E85.The second and third studies collect primary data from E85 stations in different regions of the United States to more accurately estimate preferences for E85 and investigate locational differences. The studies obtain revealed-preference (RP) data from flex motorists refueling at E85 stations and stated-preference (SP) data from surveying the flex motorists and presenting hypothetical scenarios. The second study uses the RP data to estimate relative preferences for E85, and the third study incorporates the SP data to better capture the wide range of fuel-switching behavior.The estimation sample consists of about nine hundred flex motorists in six urban areas in the Midwest and California. The sample of flex motorists who refuel at E85 stations is endogenously stratified; the probability of a flex motorist appearing in the sample is correlated to the motorist's WTP for E85. The models apply corrective probability weights so estimates reflect the population and not the sample.The results show that a $0.10 increase in the E85-E10 price difference decreases the probability of motorists choosing E85 by about 2.5 percent, on average, and preferences are spread over a broad range of fuel prices. In general, motorists are willing to pay more for E85 in California than in the Midwest, and when E85 and E10 are priced equally on a cost-per-mile basis, about 25 percent of flex motorists choose E85 in the Midwest compared to 75 percent in California.

Date: 2016-01-01
New Economics Papers: this item is included in nep-dcm and nep-ene
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