TD NEREUS 10-2012
Gervásio F. dos Santos and Weslem R. Faria
The objective of this paper is to estimate the price and income elasticity for gasoline and ethanol in the fuel market for light vehicles in Brazil using spatial panel data models. Besides diversification, there are spatial features of fuel demand and supply that might influence heterogeneity in the behavior of regional consumers. Consumer behavior is heterogeneous and directly and indirectly influenced by different supply gaps and transportation and distribution costs. Thus, spatial panel data models are used to estimate price and income elasticities of gasoline and ethanol. The spatial heterogeneity and autocorrelation in the regional consumer preferences are controlled. Results showed that, aside strong evidence of the influence of spatial autocorrelation in the consumption of gasoline and ethanol, there also is a considerable competition between these fuels, mainly due to the flex-fuel technology.