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Investment in Cellulosic Biofuel Refineries: Do Waivable Biofuel Mandates Matter?

Listed author(s):
  • Miao, Ruiqing
  • Hennessy, David A.
  • Babcock, Bruce A.

We develop a conceptual model to study the impact of mandate policies on stimulating investment in cellulosic biofuel refineries. In a two-period framework, we compare the first-period investment level (FIL) under three scenarios: laissez-faire, non-waivable mandate (NWM) policy, and waivable mandate (WM) policy. Results show that when plant-level marginal costs are increasing then both NWM policy and WM policy may stimulate FIL. The WM policy has a smaller impact than does the NWM policy. When the plant-level marginal costs are constants, however, WM policy does not increase FIL but does increase the expected profit of more efficient investors.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 34756.

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Date of creation: 01 May 2012
Publication status: Published in American Journal of Agricultural Economics, February 2012,
Handle: RePEc:isu:genres:34756
Contact details of provider: Postal:
Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
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  1. Hongli Feng & Bruce A. Babcock, 2010. "Impacts of Ethanol on Planted Acreage in Market Equilibrium," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(3), pages 789-802.
  2. Hannu Salonen, 2010. "On the existence of Nash equilibria in large games," International Journal of Game Theory, Springer;Game Theory Society, vol. 39(3), pages 351-357, July.
  3. Gardner, Bruce L., 2003. "Fuel Ethanol Subsidies And Farm Price Support: Boon Or Boondoggle?," Working Papers 28599, University of Maryland, Department of Agricultural and Resource Economics.
  4. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, July.
  5. Bryant, Henry L. & Lu, Jiamin & Richardson, James W. & Outlaw, Joe L., 2010. "Long-term Effects of the U.S. Renewable Fuel Standard on World Hunger," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61262, Agricultural and Applied Economics Association.
  6. Lapan, Harvey E. & Moschini, GianCarlo, 2009. "Biofuels Policies and Welfare: Is the Stick of Mandates Better Than the Carrot of Subsidies?," Staff General Research Papers Archive 13076, Iowa State University, Department of Economics.
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