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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. 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 23-2005, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  3. van der Ploeg, Frederick & Withagen, Cees, 2012. "Is there really a green paradox?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 342-363.
  4. 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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  7. Hassler, John & Sinn, Hans-Werner, 2012. "The Fossile Episode," CEPR Discussion Papers 9256, C.E.P.R. Discussion Papers.
  8. 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.
  9. Chakravorty, Ujjayant & Hubert, Marie-Helene & Nostbakken, Linda, 2009. "Fuel versus Food," Working Papers 2009-20, University of Alberta, Department of Economics.
  10. Ciaian, Pavel & Kancs, d'Artis, 2011. "Interdependencies in the energy-bioenergy-food price systems: A cointegration analysis," Resource and Energy Economics, Elsevier, vol. 33(1), pages 326-348, January.
  11. Chakravorty, Ujjayant & Hubert, Marie-Helene & Nostbakken, Linda, 2012. "The Long Run Impact of Biofuels on Food Prices," Working Papers 2012-11, University of Alberta, Department of Economics.
  12. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
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  14. 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.
  15. 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.
  16. Sjak Smulders & Yacov Tsur & Amos Zemel, 2010. "Announcing Climate Policy: Can a Green Paradox Arise without Scarcity?," CESifo Working Paper Series 3307, CESifo Group Munich.
  17. 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, June.
  18. Rajagopal, Deepak & Zilberman, David, 2007. "Review of environmental, economic and policy aspects of biofuels," Policy Research Working Paper Series 4341, The World Bank.
  19. repec:dgr:uvatin:2010020 is not listed on IDEAS
  20. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer, vol. 15(4), pages 360-394, August.
  21. Nazlioglu, Saban, 2011. "World oil and agricultural commodity prices: Evidence from nonlinear causality," Energy Policy, Elsevier, vol. 39(5), pages 2935-2943, May.
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