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Abstract
Ethanol production has recently surged in response to biofuel policies and increased fossil
oil prices. We develop a partial equilibrium model focused on U.S. corn-based ethanol
production with downside risk-averse farmers to assess the consequences of ethanol
production on agricultural volatility. We report substantial effects on the distribution of
corn prices with increases in the variance of prices received by farmers. Risk-averse corn
farmers still benefit due to the higher mean price effect. From a methodological
perspective, this analysis reveals that downside risk aversion may be important.