Build it, But Will They Come? Evidence from Consumer Choice between Gasoline and Sugarcane Ethanol

52 Pages Posted: 9 Jan 2011 Last revised: 14 Jun 2018

See all articles by Alberto Salvo

Alberto Salvo

National University of Singapore (NUS) - Department of Economics

Cristian Huse

Stockholm School of Economics; Swedish House of Finance

Date Written: October 15, 2012

Abstract

How motorists might switch from gasoline and diesel to alternative energy sources is not known, since the availability of alternatives is currently very limited. To bridge this gap, we exploit recent exogenous variation in ethanol prices at Brazil's pumps and uncover substantial consumer heterogeneity in the choice among century-old gasoline and a less-established -- but still widely available and usable -- alternative, sugarcane ethanol. We observe roughly 20% of flexible-fuel motorists choosing gasoline when gasoline is priced 20% above ethanol in energy-adjusted terms ($/mile) and, similarly, 20% of motorists choosing ethanol when ethanol is priced 20% above gasoline. We use transaction-level data to explore "non-price" characteristics which differentiate the two goods in the minds of different groups of consumers. Our findings suggest -- and a counterfactual illustrates -- that switching away from gasoline en masse, should this be desired, would require considerable price discounts to boost voluntary adoption, in the US and elsewhere.

Keywords: Fossil Fuels, Renewable Fuels, Alternative Fuels, Gasoline, Ethanol, Biofuels, Flexible-Fuel Vehicles, Consumer Choice, Consumer Preferences, Perfect Substitutes, Differentiated Products

JEL Classification: D12, Q42, R41

Suggested Citation

Salvo, Alberto and Huse, Cristian, Build it, But Will They Come? Evidence from Consumer Choice between Gasoline and Sugarcane Ethanol (October 15, 2012). Journal of Environmental Economics and Management, Vol. 66, No. 2, 2013. Available at SSRN: https://ssrn.com/abstract=1737312 or http://dx.doi.org/10.2139/ssrn.1737312

Alberto Salvo (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

Cristian Huse

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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