Calculating the Reserve for a Time and Usage Indexed Warranty

Jehoshua Eliashberg, Nozer D. Singpurwalla and Simon P. Wilson
Additional contact information
Jehoshua Eliashberg: Marketing Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Nozer D. Singpurwalla: Department of Operations Research, The George Washington University, Washington, DC 20052
Simon P. Wilson: Department of Statistics, University of Dublin, Trinity College, Ireland

Management Science, 1997, vol. 43, issue 7, 966-975

Abstract: Many products carry a warranty that offers protection for the consumer against low quality. These warranties are often two dimensional, such as an automobile warranty that guarantees repair up to a certain time and mileage after sale. This paper considers the problem of assessing the size of a reserve needed by the manufacturer to meet future claims for such a two-dimensional warranty. To do this, a class of failure models that describe failure by two scales---time and mileage, for example---must be developed. The first half of the paper is devoted to this development. Then the warranty reserve problem is considered in more detail. The problem is described and a decision-theoretic solution, making use of the newly developed reliability model, is proposed.

Keywords: decision analysis; failure rate; logistic function; proportional hazard; reliability theory; utility; warranty reserve (search for similar items in EconPapers)
Date: 1997
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