Econometric Analysis of Motorists’ Preference for Ethanol in Motor Fuel
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This study uses E85 sales data to estimate motorists’ preference for ethanol. We apply a theoretical choice model linking the volume of E85 sold by a station to the underlying distribution of willingness to pay for E85 instead of traditional gasoline (E10) among motorists with flexible-fuel vehicles (FFVs). We estimate the model using instrumental variables techniques to control for the endogeneity of prices. We find that the average flex motorist switches to E85 when it is discounted by $0.57 per gallon in energy-equivalent dollars, but preferences are diverse, and about 11 percent of motorists choose E85 when the two fuels are priced equally in energy-adjusted terms. Our estimates of the demand for E85 provide new evidence of the potential demand for ethanol beyond the E10 blend wall.