Working Paper: NBER ID: w16371
Authors: Soren T. Anderson
Abstract: 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.
Keywords: Ethanol; Gasoline; Household Preferences; Demand Estimation
JEL Codes: Q41; Q42; Q48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Household preferences for ethanol (Q42) | Economic efficiency cost of ethanol content standard (D61) |
| Ethanol price (Q41) | Ethanol demand (Q47) |
| Gasoline price (L97) | Ethanol demand (Q47) |
| Ethanol demand elasticity (Q47) | Ethanol demand sensitivity to prices (Q47) |