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Consumer value of fuel choice flexibility: a case study of the flex-fuel car in Sweden
KTH, School of Architecture and the Built Environment (ABE), Centres, Centre for Transport Studies, CTS. Swedish National Road and Transport Research Institute, Linköping, Sweden . (TRENoP, Royal Institute of Technology, Stockholm, Sweden)
2013 (English)In: European Transport Research Review, ISSN 1867-0717, E-ISSN 1866-8887, Vol. 5, no 4, 207-215 p.Article 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
2013. Vol. 5, no 4, 207-215 p.
Keyword [en]
Flex-fuel car, Geometric Brownian motion, Mean-reversion, Real option analysis, Environmental policy, Flex-fuel, Monte-Carlo simulations, Stochastic properties, Switching strategies, Intelligent systems, Random processes, Fuels
National Category
Mechanical Engineering
URN: urn:nbn:se:kth:diva-139870DOI: 10.1007/s12544-013-0104-2ScopusID: 2-s2.0-84886785754OAI: diva2:690034

QC 20140122

Available from: 2014-01-22 Created: 2014-01-15 Last updated: 2014-01-22Bibliographically approved

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Krüger, Niclas A.
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