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A Welfare Analysis of the U.S. Ethanol Subsidy

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  • Du, Xiaodong
  • Hayes, Dermot J.
  • Baker, Mindy

Abstract

Based on an analytical model of multiple interconnected 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 fact that the ethanol program was implemented in a market that had already been distorted by other programs. The results suggest a total social cost of about $0.89 billion for given market parameters. We validate the model's underlying assumption and test for the results' sensitivity to assumed parameters.

Suggested Citation

  • Du, Xiaodong & Hayes, Dermot J. & Baker, Mindy, 2010. "A Welfare Analysis of the U.S. Ethanol Subsidy," Staff General Research Papers Archive 31532, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:31532
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    1. 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," Food and Agricultural Policy Research Institute (FAPRI) Publications 07-sr101, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
    2. Daniel J. Graham & Stephen Glaister, 2002. "The Demand for Automobile Fuel: A Survey of Elasticities," Journal of Transport Economics and Policy, University of Bath, vol. 36(1), pages 1-25, January.
    3. Thaeripour, Farzad & Tyner, Wallace E., 2007. "Ethanol subsidies, Who gets the benefits?," Biofuels, Food and Feed Tradeoffs Conference, April 12-13, 2007, St, Louis, Missouri 48776, Farm Foundation.
    4. 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, Agricultural and Applied Economics Association, vol. 90(4), pages 918-932.
    5. Gardner Bruce, 2007. "Fuel Ethanol Subsidies and Farm Price Support," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 5(2), pages 1-22, December.
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    Cited by:

    1. Bullock David S. & Couleau Anabelle, 2014. "Policy Analysis in Welfare and Policy Spaces: Applications to the Labyrinthine U.S. Ethanol Policy Literature," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 12(1), pages 1-17, January.
    2. Thompson, Wyatt & Whistance, Jarrett & Meyer, Seth, 2011. "Effects of US biofuel policies on US and world petroleum product markets with consequences for greenhouse gas emissions," Energy Policy, Elsevier, vol. 39(9), pages 5509-5518, September.
    3. Bullock, David S., 2012. "Dangers of Using Political Preference Functions in Political Economy Analysis: Examples from U.S. Ethanol Policy," 2012 First Congress, June 4-5, 2012, Trento, Italy 124118, Italian Association of Agricultural and Applied Economics (AIEAA).
    4. repec:spr:empeco:v:52:y:2017:i:4:d:10.1007_s00181-016-1112-6 is not listed on IDEAS

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