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Energy-related financial literacy and bounded rationality in appliance replacement attitudes: Evidence from Nepal

Author

Listed:
  • Massimo Filippini

    () (ETH Zurich, Switzerland)

  • Nilkanth Kumar

    () (ETH Zurich, Switzerland)

  • Suchita Srinivasan

    () (ETH Zurich, Switzerland)

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.

Suggested Citation

  • Massimo Filippini & Nilkanth Kumar & Suchita Srinivasan, 2019. "Energy-related financial literacy and bounded rationality in appliance replacement attitudes: Evidence from Nepal," CER-ETH Economics working paper series 19/315, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:19-315
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bounded rationality; Energy literacy; Financial literacy; Households; Nepal;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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