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Identifying Supply and Demand Elasticities of Agricultural Commodities: Implications for the US Ethanol Mandate

  • Michael J. Roberts
  • Wolfram Schlenker

We present a new framework to identify supply elasticities of storable commodities where past shocks are used as exogenous price shifters. In the agricultural context, past yield shocks change inventory levels and futures prices of agricultural commodities. We use our estimated elasticities to evaluate the impact of the 2009 Renewable Fuel Standard on commodity prices, quantities, and food consumers' surplus for the four basic staples: corn, rice, soybeans, and wheat. Prices increase 20 percent if one-third of commodities used to produce ethanol are recycled as feedstock, with a positively skewed 95 percent confidence interval that ranges from 14 to 35 percent.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 103 (2013)
Issue (Month): 6 (October)
Pages: 2265-95

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Handle: RePEc:aea:aecrev:v:103:y:2013:i:6:p:2265-95
Note: DOI: 10.1257/aer.103.6.2265
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  1. Kanlaya J. Barr & Bruce A. Babcock & Miguel Carriquiry & Andre Nasser & Leila Harfuch, 2010. "Agricultural Land Elasticities in the United States and Brazil," Center for Agricultural and Rural Development (CARD) Publications 10-wp505, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  2. Charles R. Nelson & Richard Startz, 1988. "Some Further Results on the Exact Small Sample Properties of the Instrumental Variable Estimator," NBER Technical Working Papers 0068, National Bureau of Economic Research, Inc.
  3. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 725-753, August.
  4. Michael J. Roberts & Nigel Key & Erik O'Donoghue, 2006. "Estimating the Extent of Moral Hazard in Crop Insurance Using Administrative Data ," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(3), pages 381-390.
  5. Askari, Hossein & Cummings, John Thomas, 1977. "Estimating Agricultural Supply Response with the Nerlove Model: A Survey," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 257-92, June.
  6. Lucille Williamson & Paul Williamson, 1942. "What We Eat," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(3), pages 698-703.
  7. Eugenio S. A. Bobenrieth H. & Juan R. A. Bobenrieth H. & Brian D. Wright, 2002. "A Commodity Price Process with a Unique Continuous Invariant Distribution Having Infinite Mean," Econometrica, Econometric Society, vol. 70(3), pages 1213-1219, May.
  8. José A. Scheinkman & Jack Schechtman, 1983. "A Simple Competitive Model with Production and Storage," Review of Economic Studies, Oxford University Press, vol. 50(3), pages 427-441.
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