The Demand for Ethanol as a Gasoline Substitute

70 Pages Posted: 20 Sep 2010 Last revised: 14 Oct 2013

See all articles by Soren Anderson

Soren Anderson

Michigan State University - Department of Economics; Michigan State University - Department of Agricultural Economics; National Bureau of Economic Research

Date Written: September 2010

Abstract

This paper estimates household preferences for ethanol as a gasoline substitute. I develop a theoretical model linking the shape of the ethanol demand curve to the distribution of price ratios at which individual households switch fuels. I estimate the model using data from many retail fueling stations. Demand is price-sensitive with a mean elasticity of 2.5-3.5. I find that preferences are heterogeneous with many households willing to pay a premium for ethanol. This reduces the simulated cost of an ethanol content standard, since some households choose ethanol without large subsidies; simulated costs are still high relative to likely environmental benefits.

Suggested Citation

Anderson, Soren T., The Demand for Ethanol as a Gasoline Substitute (September 2010). NBER Working Paper No. w16371. Available at SSRN: https://ssrn.com/abstract=1678914

Soren T. Anderson (Contact Author)

Michigan State University - Department of Economics ( email )

East Lansing, MI 48824
United States

Michigan State University - Department of Agricultural Economics ( email )

East Lansing, MI 48824
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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