Arbitrage between ethanol and gasoline: evidence from motor fuel consumption in Brazil
Unlike regular cars, ex-fuel vehicles (FFVs) allow motorists to fuel on motor blends that contain between zero and one hundred percent of ethanol. This paper investigates how motorists arbitrage between hydrous ethanol and gasoline using aggregate fuel consumption data in Brazil. The ability of FFV motorists to arbitrage between fuel blends shapes of aggregate demands for hydrous ethanol and gasoline. I estimate using nonlinear seemingly unrelated regressions the demands for hydrous ethanol and gasoline in Brazil, and motorists preferences for hydrous ethanol. I find that on average, accounting for the relative energy contents of the two fuels, FFV motorists in Brazil slightly discount hydrous ethanol over gasoline. Most consumers switch between fuels when their relative prices are at near parity. I find that 20% of consumers still purchase hydrous ethanol when its price is about 10% above the price of gasoline. The distribution of preferences is not symmetric as 20% of consumers still purchase gasoline when there is a 15% discount on the price of hydrous ethanol.
|Date of creation:||03 Jun 2013|
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- Anderson, Soren T., 2012.
"The demand for ethanol as a gasoline substitute,"
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- Soren T. Anderson, 2010. "The Demand for Ethanol as a Gasoline Substitute," NBER Working Papers 16371, National Bureau of Economic Research, Inc.
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- Martines-Filho, Joao Gomes & Burnquist, Heloisa Lee & Vian, Carlos Eduardo de Freitas, 2006. "Bioenergy and the Rise of Sugarcane-Based Ethanol in Brazil," Choices, Agricultural and Applied Economics Association, vol. 21(2).
- Hira, Anil & de Oliveira, Luiz Guilherme, 2009. "No substitute for oil? How Brazil developed its ethanol industry," Energy Policy, Elsevier, vol. 37(6), pages 2450-2456, June. Full references (including those not matched with items on IDEAS)
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