IMF Working Papers

Demand for Ethanol Considering Spatially Differentiated Fuel Retailers

By Simone M Cuiabano

November 1, 2024

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Format: Chicago

Simone M Cuiabano. "Demand for Ethanol Considering Spatially Differentiated Fuel Retailers", IMF Working Papers 2024, 231 (2024), accessed November 6, 2024, https://doi.org/10.5089/9798400292569.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The document presents an innovative analysis of ethanol demand, emphasizing the significant role of spatially differentiated fuel retailers in shaping consumer preferences and fuel-switching behavior. Utilizing a nested logit model and data from Brazilian fuel retailers, the study reveals that ethanol demand is highly responsive to price changes, with relative price elasticity exceeding that of gasoline. Key findings indicate that retailer characteristics, such as branding and location, influence consumer preferences, highlighting the importance of considering spatial differentiation in demand estimation models. The study's results have profound implications for policy-making, suggesting that encouraging the use of ethanol as an alternative energy source can serve as an effective climate change mitigation strategy. The recommendations stress the need for policies that account for consumer price sensitivities and the competitive landscape of fuel retailers. This could enhance the adoption of cleaner fuels and reduce dependency on imported oil, aligning with broader environmental and economic objectives.

Keywords: Demand estimation, Ethanol, Nested logit

Publication Details