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Consumer Value of Fuel Choice Flexibility – A Case Study of the Flex-Fuel Car in Sweden
Centre of Transport Studies, Stockholm, Sweden .
Karlstad University, Faculty of Economic Sciences, Communication and IT, Department of Economics and Statistics.
2013 (English)In: European Transport Research Review, ISSN 1867-0717, E-ISSN 1866-8887, Vol. 5, no 4, p. 207-215Article in journal (Refereed) Published
Abstract [en]

Purpose                        

This paper examines the value of fuel choice flexibility derived from a flex-fuel engine.

Method                             

Based on the stochastic properties of fuel prices, we use Monte-Carlo simulation in order to value the option to switch fuel.

Results                             

Our findings indicate a considerable value of fuel choice flexibility, ranging between 7,500 and 37,800 SEK, depending on the underlying stochastic process we assume that fuel prices follow. This can be compared to the state subsidy of 10,000 SEK provided until recently for buying a flex-fuel car.

Conclusion                             

Compared to an environmentally friendly pure ethanol strategy, the switching strategy is considerably less costly, about 2,000–19,000 SEK depending on the assumed underlying stochastic process, a fact that is important to take into consideration with environmental policy.

                                       

Place, publisher, year, edition, pages
Springer, 2013. Vol. 5, no 4, p. 207-215
Keywords [en]
Real option analysis, flex-fuel car, mean-reversion, geometric brownian motion
National Category
Economics
Research subject
Economics
Identifiers
URN: urn:nbn:se:kau:diva-30398DOI: 10.1007/s12544-013-0104-2ISI: 000209728300004OAI: oai:DiVA.org:kau-30398DiVA, id: diva2:668189
Available from: 2013-11-29 Created: 2013-11-29 Last updated: 2019-12-03Bibliographically approved

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