Do Consumers Distinguish Fixed Cost from Variable Cost? "Schmeduling" in Two-Part Tariffs in Energy

Koichiro Ito and Shuang Zhang

American Economic Journal: Economic Policy, 2025, vol. 17, issue 2, 194-223

Abstract: 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 its policy implications for two-part energy tariffs, this schmeduling behavior makes fixed costs directly relevant to the perceived relative prices of goods, and therefore alters the welfare implications of price, tax, and subsidy designs.

JEL-codes: D12 D91 H24 L94 O12 P28 P36 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/pol.20230613 (application/pdf)
https://doi.org/10.3886/E197923V1 (text/html)
https://www.aeaweb.org/articles/materials/22882 (application/pdf)
https://www.aeaweb.org/articles/materials/22883 (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejpol:v:17:y:2025:i:2:p:194-223

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/pol.20230613

Access Statistics for this article

American Economic Journal: Economic Policy is currently edited by Matthew Shapiro

More articles in American Economic Journal: Economic Policy from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().