The demand for ethanol as a gasoline substitute

Soren Anderson

Journal of Environmental Economics and Management, 2012, vol. 63, issue 2, 151-168

Abstract: This paper estimates household preferences for ethanol (E85) as a gasoline (E10) substitute. I develop a theoretical model linking the shape of the ethanol demand curve to the underlying distribution among households of willingness to pay for ethanol. I estimate the model using instrumental variables techniques and data from many retail fueling stations. I find that a $0.10-per-gallon increase in ethanol's price relative to gasoline leads to a 12–16% decrease in the quantity of ethanol demanded. My findings imply that preferences for ethanol are heterogeneous and that a substantial fraction of households are willing to pay a premium for the fuel. This reduces substantially the simulated efficiency cost of an ethanol content standard, since some households choose ethanol without large subsidies, mitigating deadweight losses.

Keywords: Alternative fuels; Biofuels; Ethanol demand; Gasoline demand (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (57)

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Working Paper: The Demand for Ethanol as a Gasoline Substitute (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:63:y:2012:i:2:p:151-168

DOI: 10.1016/j.jeem.2011.08.002

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