Do consumers distinguish fixed cost from variable cost? “Schmeduling" in two-part tariffs in energy∗
File(s)
Accepted version
Author(s)
Ito, Koichiro
Zhang, Shuang
Type
Journal Article
Abstract
A central assumption in economics is that consumers properly distinguish fixed cost from vari able 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 assump tion, 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.
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 assump tion, 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.
Date Acceptance
2024-08-13
Citation
American Economic Journal: Economic Policy
Journal / Book Title
American Economic Journal: Economic Policy
Copyright Statement
Subject to copyright. This paper is embargoed until publication. Once published the author’s accepted manuscript will be made available under a CC-BY License in accordance with Imperial’s Research Publications Open Access policy (www.imperial.ac.uk/oa-policy).
License URL
Publication Status
Accepted
Rights Embargo Date
10000-01-01
Date Publish Online
2025-04-29