This paper estimates household preferences for ethanol as a gasoline substitute. I develop a theoretical
model linking the shape of the ethanol demand curve to the distribution of price ratios at which individual
households switch fuels. I estimate the model using data from many retail fueling stations. Demand
is price-sensitive with a mean elasticity of 2.5�3.5. I find that preferences are heterogeneous with many
households willing to pay a premium for ethanol. This reduces the simulated cost of an ethanol content
standard, since some households choose ethanol without large subsidies; simulated costs are still high
relative to likely environmental benefits.

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Soren Anderson
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