Market efficiency impacted by government pricing policy for gasohol consumption : a case of Thailand

Abstract

The aim of the dissertation is to examine the market efficiency of gasohol consumption in Thailand impacted by government pricing policies (a tax and subsidy regime managed via the Oil Fund) for 2004-2013. The deadweight losses in gasohol are estimated through the changes in consumer and producer surplus applying the Johansen cointegration method and the Vector Error Correction Model.

Consequently, the elasticity estimates indicate that the consumption of gasohol 91, E20, and E85 are elastic to their own prices in the long run. But gasohol 95 consumption is elastic to its own price in the short run. Besides, the total long run deadweight losses in gasohol 91, 95, E20, and E85 are 2937.63, 35611.81, 349.99, and 673.90 million baht for 2004-2013 and become 2348.09, 22861.09, 348.99, and 673.90 million baht for 2009-2013, respectively. Conspicuously, gasohol 95 causes the highest total deadweight loss, whereas gasohol E85 results in the maximum per unit deadweight loss (3.57 baht per liter). In comparison, the per unit deadweight losses in gasohol 91, 95, and E20 are rather small as 0.25, 1.21, and 0.19 baht per liter, respectively.

Thus, the government pricing policies are practical as a pricing strategy for achieving the objectives of gasohol usage promotion, but it creates market inefficiency. In addition, since taxation and subsidy of the Oil Fund generate the deadweight losses, the government should take advantage of the downtrend in global crude oil prices by abolishing the oil fund taxes (subsidies) on gasohol 91 and 95, reducing the oil fund taxes on gasoline (sustaining its prices beyond gasohol prices), and decreasing the oil fund subsidies on gasohol E20 and E85 in order to diminish the market inefficiency.