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Spatial Patterns in Household Demand for Ethanol

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  • Khachatryan, Hayk
  • Jessup, Eric
  • Casavant, Kenneth

Abstract

The recent rise in public environmental awareness, concerns of national energy security, and high transportation fuel prices have all served to heighten the interest in alternative fuels. One fundamental issue influencing the economic viability of the ethanol industry is consumers’ demand-responsiveness to both gasoline and ethanol price changes. In this paper we present an alternative approach to this problem by estimating the geographic variation of price-elasticity of demand for ethanol across the study area, a departure from previous studies of ethanol demand, in which the price-elasticity of demand is identical across the space. Considering the spatial heterogeneity in household composition and demand preferences, using global estimates to explain the price-demand relationships over a large geographic area may lead to biased results. We demonstrate that the spatially weighted regression technique provides superior estimates over a global regression model. Resulting price-elasticities of demand for ethanol reveal significant geographic variation, suggesting that the use of spatially disaggregated data provides more detailed empirical results and a more thorough understanding for policy determination related to the ethanol industry. In a subsequent paper, these results will be used to simulate the effects of state-level alternative fuel policies on reducing the environmental emissions.

Suggested Citation

  • Khachatryan, Hayk & Jessup, Eric & Casavant, Kenneth, 2010. "Spatial Patterns in Household Demand for Ethanol," 51st Annual Transportation Research Forum, Arlington, Virginia, March 11-13, 2010 207248, Transportation Research Forum.
    • Handle: RePEc:ags:ndtr10:207248
    DOI: 10.22004/ag.econ.207248
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