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A Welfare Analysis of the U.S. Ethanol Subsidy

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Author Info
Du, Xiaodong (Sheldon)
Hayes, Dermot J.
Baker, Mindy

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Abstract

Based on a transparent analytical model of multiple markets including corn, ethanol, gasoline, and transportation fuel, this study estimates the welfare changes for consumers and producers resulting from ethanol production and related support polices in 2007. The welfare estimation takes into account the second-best gain from eliminating loan deficiency payments. The results suggest the total social cost is about $0.78 billion for given market parameters. We validate the model’s underlying assumption and test for the results’ sensitivity to assumed parameters.

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Publisher Info
Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 13003.

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Date of creation: 04 Nov 2008
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Handle: RePEc:isu:genres:13003

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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Related research
Keywords: consumer surplus; deadweight loss; ethanol; subsidy; substitution.;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Babcock, Bruce A., 2008. "Distributional Implications of U.S. Ethanol Policy," Staff General Research Papers 12936, Iowa State University, Department of Economics. [Downloadable!]
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  2. Bruce Gardner, 2007. "Fuel Ethanol Subsidies and Farm Price Support," Journal of Agricultural & Food Industrial Organization, Berkeley Electronic Press, vol. 5(2), pages 1188-1188. [Downloadable!] (restricted)
  3. Xiaodong Du & Dermot J. Hayes, 2008. "Impact of Ethanol Production on U.S. and Regional Gasoline Prices and on the Profitability of the U.S. Oil Refinery Industry, The," Center for Agricultural and Rural Development (CARD) Publications 08-wp467, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
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  4. Simla Tokgoz & Amani Elobeid & Jacinto F. Fabiosa & Dermot J. Hayes & Bruce A. Babcock & Tun-Hsiang (Edward) Yu & Fengxia Dong & Chad E. Hart & John C. Beghin, 2007. "Emerging Biofuels: Outlook of Effects on U.S. Grain, Oilseed, and Livestock Markets," Center for Agricultural and Rural Development (CARD) Publications 07-sr101, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
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  5. Bruce Gardner & Wallace Tyner, 2007. "Explorations in Biofuels Economics, Policy, and History: Introduction to the Special Issue," Journal of Agricultural & Food Industrial Organization, Berkeley Electronic Press, vol. 5(2), pages 1210-1210. [Downloadable!] (restricted)
  6. de Gorter, Harry & Just, David R., 2007. "The Welfare Economics of an Excise-Tax Exemption for Biofuels," MPRA Paper 5151, University Library of Munich, Germany, revised Sep 2007. [Downloadable!]
  7. Amani Elobeid & Simla Tokgoz, 2008. "Removing Distortions in the U.S. Ethanol Market: What Does It Imply for the United States and Brazil?," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 90(4), pages 918-932, November. [Downloadable!] (restricted)
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  1. Mindy L. Baker, 2008. "Welfare Changes from the U.S. Ethanol Tax Credit: The Role of Uncertainty and Interlinked Commodity Markets," Center for Agricultural and Rural Development (CARD) Publications 08-wp483, Center for Agricultural and Rural Development (CARD) at Iowa State University. [Downloadable!]
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