It is sometimes difficult to imagine why some people take decisions that make no economic sense. Take those that accept to receive payday loans at interest rates that defy any reason. Yet it can make economic sense, under some circumstances. In a similar vein is the observation that some people pay rent that seems to be far too high compared to the intrinsic value of the good.
Magnus Hatlebakk reports about one such example, rickshaw pullers in Nepal. They typically rent their rickshaws, and the rent cumulated over a year corresponds to the price of the rickshaw. It is particularly puzzling as microcredit is available, although at a different payment schedule: rent is 40 rupees a day, while servicing a loan would be 240 rupees a week. From a survey, Hatlebakk concludes that rickshaw pullers are not myopic, excessively impatient or financial completely illiterate: their income is simply so close to subsistence consumption that they cannot save up the 240 rupees for the loan service. At least this is what Hatlebakk argues, which I do not understand. If they do not pay rent, they could have save 40 rupees a day and be able to pay the weekly 240 rupees after six days. I suspect what is at play is more something like what makes ROSCAs so popular in many developing economies: people unable to keep significant amounts of cash, either because of the risk theft, misuse or, yes, myopia.
It would have helped the paper if it mentioned what the average lifespan of a rickshaw is, and whether rental provided some form of insurance, for example by providing a replacement in the event a rented rickshaw breaks. Indeed, the insurance aspect could also be important if there is substantial risk, or if the owner provides for repairs.