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Three-Part Tariffs and Short-Run Rationality in the Local Fixed Telephone Consumption: Empirical Evidence from Medellín

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  • David Tobón Orozco

    (Universidad de Antioquia)

Abstract

In this paper we are interested in investigating the effects of the threepart tariffs system on consumers’ behavior in the local fixed telephone service provided by the incumbent Telecommunications Company une in Medellín, which was authorized by the Telecommunications Regulatory Commission (crt, for its Spanish name). In order to study consumer behavior and the effect of this tariff system we specify a sort of Engel Curve, which relates expenditure in fixed telephone service and expenditure in public utilities. Endogeneity problems could well arise from this specification, so the empirical strategy for studying households’ consumption is based on a panel data analysis by performing instrumental variables and gmm procedures. Our results supports the hypothesis that consumers surpass expected consumption levels and therefore the total payment for the service is greater than planned, showing a sort of short-run irrationality in consumption.

Suggested Citation

  • David Tobón Orozco, 2010. "Three-Part Tariffs and Short-Run Rationality in the Local Fixed Telephone Consumption: Empirical Evidence from Medellín," Grupo Microeconomía Aplicada 058, Universidad de Antioquia, Departamento de Economía.
    • Handle: RePEc:lde:grupom:058
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    References listed on IDEAS

    as
    1. Mark Armstrong, 2016. "Nonlinear Pricing," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 583-614, October.
    2. Richard Blundell & Alan Duncan & Krishna Pendakur, 1998. "Semiparametric estimation and consumer demand," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(5), pages 435-461.
    3. Robert D. Willig, 1978. "Pareto-Superior Nonlinear Outlay Schedules," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 56-69, Spring.
    4. James Banks & Richard Blundell & Arthur Lewbel, 1997. "Quadratic Engel Curves And Consumer Demand," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 527-539, November.
    5. Jorge Barrientos Marín, 2009. "On the consumer behavior in urban Colombia: the case of Bogotá," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 27(59), pages 83-99, June.
    6. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
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    Cited by:

    1. Lahav, Yael & Herbon, Avi & Spiegel, Uriel, 2023. "The cost-benefit approach to an optimal charging scheme for an embryo storage service," Operations Research Perspectives, Elsevier, vol. 10(C).

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    More about this item

    Keywords

    three-part tariffs; consumers’ behavior; rationality; endogeneity; gmm estimators;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D60 - Microeconomics - - Welfare Economics - - - General

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