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

Abstract

Inefficient energy pricing hinders economic development in many countries. We examine longrun effects of a recent heating reform in China that replaced a commonly-used fixed-payment system with individually-metered pricing. Using staggered policy rollouts and administrative data on household-level daily heating consumption, we find that the reform induced long-run reductions in heating usage and generated substantial welfare gains. Consumers gradually learned how to conserve heating effectively, making short-run evaluations underestimate the policy impacts. Our results suggest that energy price reform is an effective way to improve allocative efficiency and air quality in developing countries, where unmetered-inefficient pricing is still ubiquitous.

Estimating Residential Water Demand Under Systematic Shifts Between Uniform Price (UP) and Increasing Block Tariffs (IBT)

“…In addition, it is important to remember that the DCC model assumes people respond to marginal prices instead of average prices. According to Cook and Brent (2021), there are cases in which people react to marginal prices (Ito & Zhang, 2020; Nataraj & Hanemann, 2011), while in others, they react to average prices (Ito, 2014; Nieswiadomy & Molina, 1991; Shin, 1985). Gibbs (1978) points out that the correct price variable in water residential demand models is the marginal price since the average price generates an overestimated consumption response to price and income changes.…”