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On the (De)Stabilization Effects of Biofuels: Relative Contributions of Policy Instruments and Market Forces

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  • Gohin, Alexandre
  • Treguer, David

Abstract

Ethanol production has recently surged in response to biofuel policies and increased fossil oil prices. We develop a partial equilibrium model focused on U.S. corn-based ethanol production with downside risk-averse farmers to assess the consequences of ethanol production on agricultural volatility. We report substantial effects on the distribution of corn prices with increases in the variance of prices received by farmers. Risk-averse corn farmers still benefit due to the higher mean price effect. From a methodological perspective, this analysis reveals that downside risk aversion may be important.

Suggested Citation

  • Gohin, Alexandre & Treguer, David, 2010. "On the (De)Stabilization Effects of Biofuels: Relative Contributions of Policy Instruments and Market Forces," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 35(1), pages 1-15.
    • Handle: RePEc:ags:jlaare:61061
    DOI: 10.22004/ag.econ.61061
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    References listed on IDEAS

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    1. Bruce A. Babcock, 2008. "Distributional Implications of U.S. Ethanol Policy ," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(3), pages 533-542.
    2. Harry de Gorter & David R. Just, 2007. "The Welfare Economics of a Biofuel Tax Credit and the Interaction Effects with Price Contingent Farm Subsidies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(2), pages 477-488.
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    Cited by:

    1. Natanelov, Valeri & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2013. "Crude oil–corn–ethanol – nexus: A contextual approach," Energy Policy, Elsevier, vol. 63(C), pages 504-513.
    2. Sari, Ramazan & Hammoudeh, Shawkat & Chang, Chia-Lin & McAleer, Michael, 2012. "Causality between market liquidity and depth for energy and grains," Energy Economics, Elsevier, vol. 34(5), pages 1683-1692.
    3. Xiaodong Du and Lihong Lu McPhail, 2012. "Inside the Black Box: the Price Linkage and Transmission between Energy and Agricultural Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    4. Noah S. Diffenbaugh & Thomas W. Hertel & Martin Scherer & Monika Verma, 2012. "Response of corn markets to climate volatility under alternative energy futures," Nature Climate Change, Nature, vol. 2(7), pages 514-518, July.
    5. Hammoudeh, S.M. & Sarafrazi, S. & Chang, C-L. & McAleer, M.J., 2011. "The Dynamics of Energy-Grain Prices with Open Interest," Econometric Institute Research Papers EI 2011-19, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    6. Condon, Nicole & Klemick, Heather & Wolverton, Ann, 2015. "Impacts of ethanol policy on corn prices: A review and meta-analysis of recent evidence," Food Policy, Elsevier, vol. 51(C), pages 63-73.
    7. Philip Abbott, 2014. "Biofuels, Binding Constraints, and Agricultural Commodity Price Volatility," NBER Chapters, in: The Economics of Food Price Volatility, pages 91-131, National Bureau of Economic Research, Inc.
    8. Cui, Hao (David) & Tyner, Wally, 2017. "Modeling Land Intensification Response in GTAP: Implications for Biofuels Induced Land Use Change," Conference papers 332812, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.

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