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Principal-agent Problems in the Purchase of Durables: Evidence from Motorcycles in Nepal

Author

Listed:
  • Massimo Filippini

    (Center of Economic Research, ETH Zurich, Zurichbergstrasse 18, 8092 Zurich, and Università della Svizzera italiana, Switzerland)

  • Nirmal Kumar Raut

    (Central Department of Economics (CEDECON), Tribhuvan University, Kathmandu, Nepal)

  • Suchita Srinivasan

    (Center of Economic Research, ETH Zurich, Zurichbergstrasse 18, 8092 Zurich, Switzerland)

  • Keshav Sureka

    (Central Department of Economics (CEDECON), Tribhuvan University, Kathmandu, Nepal)

Abstract

We investigate the existence of a principal-agent problem between parents and financially dependent adult children within households on the purchase of a durable (such as a vehicle). We theoretically argue that children will select more expensive durables if parents contribute more towards its purchase, however this effect is weaker for altruistic children. We test this empirically using unique data collected on motorcycle purchases of university students in Kathmandu Valley, Nepal. We confirm the first hypothesis, however we show that altruism does not influence this relationship. Policy implications relate to the effects on household finances, and on possible environmental impacts.

Suggested Citation

  • Massimo Filippini & Nirmal Kumar Raut & Suchita Srinivasan & Keshav Sureka, 2024. "Principal-agent Problems in the Purchase of Durables: Evidence from Motorcycles in Nepal," CER-ETH Economics working paper series 24/394, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:24-394
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    More about this item

    Keywords

    Principal-agent problems; Intra-household decision-making; Durable adoption; Motorcycle; Nepal;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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