Energy-Related Financial Literacy and Bounded Rationality in Appliance Replacement Attitudes: Evidence From Nepal

CER-ETH – Center of Economic Research at ETH Zurich, Working Paper Series 19/315, 2019

30 Pages Posted: 23 Mar 2019

See all articles by Massimo Filippini

Massimo Filippini

ETH Zürich; University of Lugano - Faculty of Economics

Nilkanth Kumar

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich; Centre for Energy Policy and Economics (CEPE) at ETH Zurich

Suchita Srinivasan

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Date Written: March 1, 2019

Abstract

Bounded rationality is an example of an important behavioral failure responsible for the energy-efficiency gap, whereby agents under-invest in energy-efficient technologies. One means of addressing this is by improving the energy-related financial literacy of households, which is defined as the combination of energy knowledge and cognitive abilities that are needed in order for agents to take sound decisions with respect to investment in durables. This has been found to improve the ability of agents to calculate the lifetime costs of technologies. The objective of this paper is to evaluate the determinants of energy-related financial literacy of respondents from about 2000 urban households in the Terai region of Nepal, and to analyze whether this ability has an effect on replacement attitudes of households regarding inefficient technologies. Using a novel household survey data, we find that respondents have low levels of energy-related financial literacy. While we find differences in the role of some socio-economic determinants of energy-related financial literacy compared to previous studies from developed countries, we also find certain common results, such as female respondents having lower scores. Additionally, we find that higher levels of energy-related financial literacy, especially stronger computational abilities, lead to more rational attitudes with regards to replacement of old appliances. As development has brought, and continues to bring, more households in low and middle-income countries (LMICs) closer to technologies of their liking, ensuring the adoption of energy-efficient technologies may be critical for ensuring sustainable development in the decades to come, and higher energy-related financial literacy may be one means of achieving that.

Keywords: Bounded Rationality, Energy Literacy, Financial Literacy, Households, Nepal

JEL Classification: D12, D80, Q41, Q48

Suggested Citation

Filippini, Massimo and Kumar, Nilkanth and Srinivasan, Suchita, Energy-Related Financial Literacy and Bounded Rationality in Appliance Replacement Attitudes: Evidence From Nepal (March 1, 2019). CER-ETH – Center of Economic Research at ETH Zurich, Working Paper Series 19/315, 2019, Available at SSRN: https://ssrn.com/abstract=3345180 or http://dx.doi.org/10.2139/ssrn.3345180

Massimo Filippini (Contact Author)

ETH Zürich ( email )

ETH-Zentrum
CH-8092 Zurich
Switzerland

University of Lugano - Faculty of Economics ( email )

Via Giuseppe Buffi 13
CH-6900 Lugano, CH-6904
Switzerland

Nilkanth Kumar

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Centre for Energy Policy and Economics (CEPE) at ETH Zurich ( email )

8092 Zurich
Switzerland

HOME PAGE: http://www.cepe.ethz.ch/

Suchita Srinivasan

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

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