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A Welfare Analysis of the U.S. Ethanol Subsidy

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

Abstract

Based on a transparent analytical model of multiple 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 second-best gain from eliminating loan deficiency payments. The results suggest the total social cost is about $0.78 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 L., 2009. "A Welfare Analysis of the U.S. Ethanol Subsidy," ISU General Staff Papers 200901010800001501, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:200901010800001501
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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 (archive only) 07-sr101, Center for Agricultural and Rural Development (CARD) 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. Hayes, Dermot J. & Babcock, Bruce A. & Fabiosa, Jacinto F. & Tokgoz, Simla & Elobeid, Amani E. & Yu, Tun-Hsiang (Edward) & Dong, Fengxia & Hart, Chad E. & Chavez, Eddie C. & Pan, Suwen & Carriquiry, M, 2009. "Biofuels: Potential Production Capacity, Effects on Grain and Livestock Sectors, and Implications for Food Prices and Consumers," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(2), April.
    4. 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.
    5. Du, Xiaodong & Hayes, Dermot J., 2009. "The impact of ethanol production on US and regional gasoline markets," Energy Policy, Elsevier, vol. 37(8), pages 3227-3234, August.
    6. 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.
    7. Taheripour, Farzad & Tyner, Wallace E., 2007. "Ethanol Subsidies, Who Gets the Benefits?," Biofuels, Food and Feed Tradeoffs Conference, April 12-13, 2007, St, Louis, Missouri 313702, Farm Foundation.
    8. de Gorter, Harry & Just, David R., 2007. "The Welfare Economics of an Excise-Tax Exemption for Biofuels," MPRA Paper 5151, University Library of Munich, Germany, revised Sep 2007.
    9. 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. 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).
    3. Fahad Saeed & Mansour Almazroui & Nazrul Islam & Mariam Saleh Khan, 2017. "Intensification of future heat waves in Pakistan: a study using CORDEX regional climate models ensemble," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 87(3), pages 1635-1647, July.
    4. 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.
    5. Lee, Yunkyung, 2020. "Potential economic consequences of gene-edited technology on the U.S. soybean market," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304241, Agricultural and Applied Economics Association.
    6. Basak Bayramoglu & Jean-François Jacques, 2016. "The economic and environmental effects of a biofuel mandate policy: the case of France [Les effets économiques et environnementaux d’une politique d’incorporation obligatoire de biocarburants : le ," Post-Print hal-02877013, HAL.
    7. Dong Hee Suh & Charles B. Moss, 2017. "Dynamic adjustment of ethanol demand to crude oil prices: implications for mandated ethanol usage," Empirical Economics, Springer, vol. 52(4), pages 1587-1607, June.

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    More about this item

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices

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