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Warranties as Signals under Consumer Moral Hazard
Nancy A. Lutz
The RAND Journal of Economics
Vol. 20, No. 2 (Summer, 1989), pp. 239-255
Stable URL: http://www.jstor.org/stable/2555691
Page Count: 17
You can always find the topics here!Topics: Consumer economics, Consumer prices, Consumer equilibrium, Warranties, Games, Consumer choice, Signals, Moral hazard models, Prices, Moral hazard
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This article examines the use of prices and warranties as signals of product quality to consumers who choose how to maintain their purchases. The seller's incentives are strongly affected by the interaction of quality and maintenance in determining product reliability. Two different assumptions about this interaction are made. A separating equilibrium in which high quality is signalled with a low warranty and low price is shown to be possible in both cases.
The RAND Journal of Economics © 1989 RAND Corporation