This dissertation investigates the economics of alternative fuels by combining the three areas of my interdisciplinary program—Economics, Marketing and Environmental Science. The first paper combines a spatial-econometric model of household demand for transportation fuels with Geographic Information Systems framework to analyze the spatial and temporal differences in the price-elasticity of demand for biofuels. In the second paper, I used a discrete choice modeling approach to investigating the link between consumers’ socio-demographic characteristics and choice behavior. The third part investigates U.S. alternative fuel policies and market-based incentives for automobile manufacturers for investing in environmentally cleaner vehicles.

The chapter titled “Spatial and Temporal Differences in the Price-Elasticity of Demand for Biofuels” investigates consumers’ demand-sensitivity to fuel price changes across the time and geographic space. Considering the spatial heterogeneity in household composition and demand preferences, using traditional econometric to explain the price-demand relationships over a large geographic area may lead to biased results. I introduce an alternative, spatially weighted econometric model, which provides superior estimates over a global regression model. The geographic variation in the price-elasticity estimates suggests that the use of spatial-econometric technique provides more detailed empirical and policy relevant results.

The second chapter titled “Determinants of Consumer Choice for Biofuels,” investigates the relationship between consumers’ fuel choice (gasoline, cellulose- and corn-based ethanol), fuel attributes (price, emissions, and service), and a set of behavioral and socio-demographic variables. The results of our national survey revealed that economic incentives, such as cheaper prices and service availability exceed environmental incentives such as reduction in greenhouse gas emissions. The findings of this study contribute to predicting consumer’s behavior, which increasingly became important in determining consumer demand. The results also provide important policy implications for the effective marketing of next generation clean transportation fuels.

The last chapter titled “A System-Dynamics Approach to Investigating Fuel-Economy and Alternative Fuel Policies” analyzes the market-based mechanisms that are designed to promote production of environmentally cleaner vehicles. The effects of several fuel-efficiency tax and rebate policies are simulated over time. The results shed light on the implementation issues of market-based mechanisms, such as revenue neutrality and a technological change over time.