Analysis and Comparison of China’s Biofuel Ethanol Subsidy Modes

  • Xiaotian Wang 1Business School, Henan University of Engineering, Zhengzhou, China 2Center for Energy, Environment & Economy Research, Zhengzhou University, Zhengzhou, China
  • Hui Zhao Business School, Henan University of Engineering, Zhengzhou, China
Keywords: fuel ethanol, Stackelberg model, social welfare, subsidy mode


Choosing an effective subsidy mode is crucial for promoting the healthy development of the biofuel ethanol industry. After considering the differences in the social welfare effects of different subsidy models, we construct a Stackelberg game model to examine the chain of the fuel ethanol industry consisting of a downstream channel intermediary as the leader and an upstream production enterprise as the follower. We then discuss how the R&D subsidy mode and production subsidy mode affect social welfare, and what kind of subsidy mode should be adopted under different conditions. The study found that different subsidy modes affect corporate profits and consumer surplus by affecting the price and demand of fuel ethanol, which in turn affect the level of social welfare. In addition, the study found that both R&D subsidy mode and production subsidy model are not always efficient. The optimal subsidy mode depends mainly on the R&D difficulty coefficient and the slope of the inverse demand function.


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Author Biographies

Xiaotian Wang, 1Business School, Henan University of Engineering, Zhengzhou, China 2Center for Energy, Environment & Economy Research, Zhengzhou University, Zhengzhou, China

Xiaotian Wang is a lecturer at Henan Institute of Engineering and a researcher at the Center for Energy, Environment & Economy Research of Zhengzhou University. He got a Phd in Business Administration at Xi’an University of Technology in 2013. His activity mainly focuses on the development of renewable energy industry; green development; behavioral science. He has participated in several national research projects and published nearly ten academic papers.

Hui Zhao, Business School, Henan University of Engineering, Zhengzhou, China

Hui Zhao is a lecturer at Henan Institute of Engineering since 2013. She earned her master’s degree at Chang’an University in 2008. She has participated in a number of provincial and ministerial research projects. Her research interests include: management philosophy; rural economy; green development.


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