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The Demand for Ethanol as a Gasoline Substitute

  • Soren T. Anderson

This paper estimates household preferences for ethanol as a gasoline substitute. I develop a theoretical model linking the shape of the ethanol demand curve to the distribution of price ratios at which individual households switch fuels. I estimate the model using data from many retail fueling stations. Demand is price-sensitive with a mean elasticity of 2.5-3.5. I find that preferences are heterogeneous with many households willing to pay a premium for ethanol. This reduces the simulated cost of an ethanol content standard, since some households choose ethanol without large subsidies; simulated costs are still high relative to likely environmental benefits.

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File URL: http://www.nber.org/papers/w16371.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16371.

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Date of creation: Sep 2010
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Publication status: published as Anderson, Soren T., 2012. "The demand for ethanol as a gasoline substitute," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 151-168.
Handle: RePEc:nbr:nberwo:16371
Note: EEE
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