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Using Game Theory to Resolve the “Chicken and Egg” Situation in Promoting Cellulosic Bioenergy Development

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  • Luo, Yi
  • Miller, Shelie A.

Abstract

The Renewable Fuel Standard (RFS) requires production of cellulosic biofuel, such as ethanol produced from switchgrass. However, the bioenergy industry faces a well-established “chicken and egg” conundrum where biorefineries cannot be built until adequate farmers' participation in cellulosic biomass production is ensured; on the other hand, farmers will not commit to growing cellulosic biomass until a market is established. We assume that individual farmers in a future biofuel market are boundedly rational, and will endure the risk of growing switchgrass if they are likely to receive a better payoff in the future. After the number of switchgrass farmers reaches a certain threshold, sufficient biomass can be procured to build an economically viable biorefinery. If a biorefinery is built in a region, the reductions of logistics costs and economies of scale lead to the realization of a public good, and all farmers can be benefited from it; otherwise, the efforts of early switchgrass adopters could be unsuccessful. In this paper, an appropriate biorefinery capacity and the corresponding incentives provided to the farmers are determined by balancing the impact and the risk of the public good. Our incentive model is more efficient than a program that incentivizes all switchgrass growers equally.

Suggested Citation

  • Luo, Yi & Miller, Shelie A., 2017. "Using Game Theory to Resolve the “Chicken and Egg” Situation in Promoting Cellulosic Bioenergy Development," Ecological Economics, Elsevier, vol. 135(C), pages 29-41.
    • Handle: RePEc:eee:ecolec:v:135:y:2017:i:c:p:29-41
    DOI: 10.1016/j.ecolecon.2016.12.013
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    1. Olszewski, Robert & Pałka, Piotr & Wendland, Agnieszka & Majdzińska, Karolina, 2021. "Application of cooperative game theory in a spatial context: An example of the application of the community-led local development instrument for the decision support system of biogas plants constructi," Land Use Policy, Elsevier, vol. 108(C).
    2. Burli, Pralhad & Lal, Pankaj & Wolde, Bernabas & Jose, Shibu & Bardhan, Sougata, 2019. "Factors affecting willingness to cultivate switchgrass: Evidence from a farmer survey in Missouri," Energy Economics, Elsevier, vol. 80(C), pages 20-29.
    3. Pulighe, Giuseppe & Bonati, Guido & Colangeli, Marco & Morese, Maria Michela & Traverso, Lorenzo & Lupia, Flavio & Khawaja, Cosette & Janssen, Rainer & Fava, Francesco, 2019. "Ongoing and emerging issues for sustainable bioenergy production on marginal lands in the Mediterranean regions," Renewable and Sustainable Energy Reviews, Elsevier, vol. 103(C), pages 58-70.
    4. Burli, Pralhad & Lal, Pankaj & Wolde, Bernabas & Jose, Shibu & Bardhan, Sougata, 2021. "Perceptions about switchgrass and land allocation decisions: Evidence from a farmer survey in Missouri," Land Use Policy, Elsevier, vol. 109(C).
    5. Dan Yu & Caihong Zhang & Siyi Wang & Lan Zhang, 2023. "Evolutionary Game and Simulation Analysis of Power Plant and Government Behavior Strategies in the Coupled Power Generation Industry of Agricultural and Forestry Biomass and Coal," Energies, MDPI, vol. 16(3), pages 1-19, February.

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