James H. Stock Photo

James H. Stock

Appointment
Harold Hitchings Burbank Professor of Political Economy, FAS
617-496-0502
Li, Jing, and James H. Stock. "Cost Pass-Through to Higher Ethanol Blends at the Pump: Evidence from Minnesota Gas Station Data." Journal of Environmental Economics and Management 93 (January 2019): 1-19.

Abstract

We examine the pass-through of wholesale prices to retail prices in the market for E85, which contains 51%–83% ethanol, and in the much larger market for E10, which contains 10% ethanol. We use a panel dataset consisting of monthly observations from 2007 to March 2015 on wholesale and retail prices for 274 Minnesota gas stations that sell both E10 and E85. Consistent with prior research, the cumulative pass-through coefficient for E10 is 1.00 after one month. In contrast, the E85 market is sparse, and although pass-through increased over time, we estimate it to be only 0.53 statewide from 2012 to 2015. Pass-through is higher at stations with more local E85 competitors. In the Twin Cities, which has a high density of E85 stations, pass-through is nearly complete, but outside the Twin Cities slightly less than half the wholesale discount of E85, relative to E10, is passed on to the consumer.