Warranties as Signals under Consumer Moral Hazard

Nancy A. Lutz

RAND Journal of Economics, 1989, vol. 20, issue 2, 239-255

Abstract: 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.

Date: 1989
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