Market Efficiency Impacted by Government Pricing Policy for Gasohol Consumption: A Case of Thailand

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Noppadol Sudprasert

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            The purpose of this study is to investigate market efficiency impacted by the Government pricing policy on gasohol products in Thailand which are taxed and subsidized by the Oil Fund to stabilize domestic fuel prices during the world oil price fluctuation. The period of study is 2004-2013. Deadweight losses are calculated via changes in consumer and producer surplus using Johansen cointegration tests and vector error correction models. The statistical results indicate that prices of gasohol 91, E20 and E85 are significantly elastic to its own consumption in the long run while price of gasohol 95 is significantly elastic to its own consumption in the short run. During 2004-2013 the total deadweight losses for gasohol 91, 95, E20, and E85 are 2937.63, 35611.81, 349.99, and 673.90 MTHB respectively while during 2009-2013 the total deadweight losses for gasohol 91, 95, E20, and E85 are 2348.09, 22861.09, 673.90, and 348.99 MTHB respectively. The highest deadweight loss occurs in the gasohol 95 market. The Government pricing policy is practical to promote using gasohol but it causes market inefficiency. The deadweight losses increase when oil fund tax or subsidy increase.  The Government should float the fuel prices by ceasing the Oil Fund or reducing oil fund tax and subsidy as much as possible especially for gasohol 95 to minimize market inefficiency and maximize fairness of using fuels.

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