Do Consumers Distinguish Fixed Cost from Variable Cost? "Schmeduling" in Two-Part Tariffs in Energy / Koichiro Ito, Shuang Zhang.

Format:

Book

Author/Creator:

Ito, Koichiro.

Contributor:

National Bureau of Economic Research.

Zhang, Shuang.

Series:

Working Paper Series (National Bureau of Economic Research) no. w26853.

NBER working paper series no. w26853

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Reforming Inefficient Energy Pricing

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2020.

Summary:

A central assumption in economics is that consumers properly distinguish fixed cost from variable cost. This assumption is fundamental to various economic theories, including optimal taxation, redistribution, and price discrimination. Using a quasi-experiment in heating price reform in China, we find empirical evidence that is inconsistent with this conventional assumption and more consistent with the "schmeduling" model in Liebman and Zeckhauser (2004). As we demonstrate the policy implications for two-part energy tariffs, this consumer behavior makes fixed cost directly relevant to the perceived relative prices of goods, and therefore alters the welfare implications of price, tax, and subsidy designs.

Notes:

Print version record

March 2020.