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

Koichiro Ito and Shuang Zhang

No 26853, NBER Working Papers from National Bureau of Economic Research, Inc

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 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.

JEL-codes: L38 L51 L97 O1 O38 O44 Q4 Q41 Q5 Q53 Q56 (search for similar items in EconPapers)
Date: 2020-03
New Economics Papers: this item is included in nep-cna, nep-ene and nep-reg
Note: DEV EEE IO
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.nber.org/papers/w26853.pdf (application/pdf)

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:nbr:nberwo:26853

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w26853

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().