Willingness to Pay for Ethanol in Motor Fuel: Evidence from Revealed and Stated Preference for E85

Kenneth Liao, Sebastien Pouliot
March 2016  [16-WP 562]

This paper estimates the relative preferences of motorists for E10 and E85 in different regions of the United States. We conducted an intercept survey of motorists with flex-fuel vehicles at E85 fuel stations in Iowa, Colorado, Oklahoma, Arkansas and California. The information collected includes prices observed at fuel stations, fuel choices by flex motorists, and responses to a series of opinion questions about ethanol and gasoline. We also proposed a hypothetical scenario to each motorist where either the price of the fuel selected was increased or the price of the fuel not selected was decreased. We estimate fuel preferences first using the revealed preference data from the observed choices and second using the stated preference data from the hypothetical price scenario. The empirical models correct for endogenous stratification within the sample and for endogeneity from unobservable demand shifters that carry over to the stated preference empirical model. We find that motorists significantly discount E85 compared to E10 even when adjusting for the different energy content of the two fuels and that the distribution of willingness to pay for E85 does not vary significantly between regions, except that flex motorists in California are willing to pay more for E85.

Keywords: Ethanol, Gasoline, Renewable Fuel Standard, Willingness to pay.

JEL codes: Q18, Q41, Q42.

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