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The Economics of Oil, Biofuel and Food Commodities

  • Eric Bahel
  • Walid Marrouch
  • Gerard Gaudet

In this paper we study the effects on the food market of the introduction of biofuels as a substitute for fossil fuel in the energy market. We consider a world economy with an oil cartel and a competitive fringe of farmers producing energy in the form of biofuels. Farmers also produce food and sell it on the world food market. We determine the resulting relationship between prices in the energy and food markets and characterize the cartel's extraction path and the price path of energy. We show that the price of food will be growing as long the oil stock is being depleted, whether population is growing or not, and that it will keep growing after the oil stock is exhausted if population is growing.

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File URL: ftp://repec.econ.vt.edu/Papers/Bahel/paper_biofuel.pdf
File Function: First version, 2010
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Paper provided by Virginia Polytechnic Institute and State University, Department of Economics in its series Working Papers with number e07-26.

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Length: 17 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:vpi:wpaper:e07-26
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  1. Ciaian, Pavel & Kancs, d'Artis, 2010. "Interdependencies in the Energy-Bioenergy-Food Price Systems: A Cointegration Analysis," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61009, Agricultural and Applied Economics Association.
  2. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
  3. GAUDET, Gérard & MOREAUX, Michel & WITHAGEN, Cees, 2005. "The Alberta Dilemma: Optimal Sharing of a Water Resource by an Agricultural and an Oil Sector," Cahiers de recherche 2005-18, Universite de Montreal, Departement de sciences economiques.
  4. Chakravorty, Ujjayant & Magné, Bertrand & Moreaux, Michel, 2008. "A dynamic model of food and clean energy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1181-1203, April.
  5. GRAFTON, R. Quentin & KOMPAS, Tom & LONG, Ngo Van, 2011. "Substitution between Biofuels and Fossil Fuels: Is There a Green Paradox?," Cahiers de recherche 10-2011, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. Chakravorty Ujjayant & Marie-Hélène Hubert & Michel Moreaux & Linda Nøstbakken, 2016. "The Long Run Impact of Biofuels on Food Prices," Post-Print halshs-01242695, HAL.
  7. Feng, Hongli & Babcock, Bruce A., 2008. "Impacts of Ethanol on Planted Acreage in Market Equilibrium," Staff General Research Papers Archive 12959, Iowa State University, Department of Economics.
  8. Rick van der Ploeg & Cees Withagen, 2010. "Is There Really a Green Paradox?," OxCarre Working Papers 035, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  9. Andrade de Sa, Saraly & Palmer, Charles & Engel, Stefanie, 2010. "Ethanol Production, Food and Forests," Proceedings of the German Development Economics Conference, Hannover 2010 21, Verein für Socialpolitik, Research Committee Development Economics.
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  11. Smulders, Sjak & Tsur, Yacov & Zemel, Amos, 2012. "Announcing climate policy: Can a green paradox arise without scarcity?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 364-376.
  12. John Hassler & Hans-Werner Sinn, 2012. "The Fossil Episode," CESifo Working Paper Series 4016, CESifo Group Munich.
  13. Hochman Gal & Sexton Steven E & Zilberman David D, 2008. "The Economics of Biofuel Policy and Biotechnology," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 6(2), pages 1-24, December.
  14. Chakravorty, Ujjayant & Hubert, Marie-Helene & Nostbakken, Linda, 2009. "Fuel versus Food," Working Papers 2009-20, University of Alberta, Department of Economics.
  15. Rajagopal, Deepak & Zilberman, David, 2007. "Review of environmental, economic and policy aspects of biofuels," Policy Research Working Paper Series 4341, The World Bank.
  16. Sinn, Hans-Werner, 2012. "The Green Paradox: A Supply-Side Approach to Global Warming," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016680, December.
  17. Salant, Stephen W, 1976. "Exhaustible Resources and Industrial Structure: A Nash-Cournot Approach to the World Oil Market," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 1079-93, October.
  18. Hubert, Marie-Helene & Chakravorty, Ujjayant & van Kooten, G. Cornelis, 2008. "Biofuels, Agriculture And Climate Change," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44259, European Association of Agricultural Economists.
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