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

Massimo Filippini, Nirmal Kumar Raut, Suchita Srinivasan () and Keshav Sureka
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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

No 24/394, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

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.

Keywords: Principal-agent problems; Intra-household decision-making; Durable adoption; Motorcycle; Nepal (search for similar items in EconPapers)
JEL-codes: D1 D8 Q4 Q5 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2024-07
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