An Analytical Model for Competition between Biofuel and Food

Abstract

This paper presents an analytical model for analyzing the competition between biofuels and food. The model is based on the Cournot model in which two representative consumers of corn, one each for bioethanol and food, decide the consumption so as to maximize their utility. Comparing the equilibrium consumption with the optimal consumption shows that the market equilibrium where corn is used for both bioethanol and food is inefficient. The effects of a tax and a subsidy on consumption are then discussed to examine whether or not the optimal consumption can be achieved. The results demonstrate that the use of a tax can achieve the optimal consumption, whereas the use of a subsidy cannot.