Abstract
This paper employs a partial equilibrium trade framework to show that biofuel policy can substitute for traditional agricultural policy intended to boost farm welfare. It also shows how food market volatility can induce periods of boom and bust in the ethanol industry, causing episodes of bankruptcy and reduced capital investment. This paper further models the effects of two specific technological innovationscellulosic ethanol and agricultural biotechnologyon food and fuel markets and demonstrates that technology can reduce ethanol market volatility. A parameterized model is used to characterize the impacts of biofuels on food and fuel markets.
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