A theory of the consumer product warranty

TL;DRAbstract

This article proposes a new theory of the standardized warranty and of the determinants of the content of the warranties of individual products. … A warranty is viewed as a contract that optimizes the productive services of goods by allocating responsibility between a manufacturer and consumer for investments to prolong the useful life of a product and to insure against product losses. According to the theory, the terms of warranty contracts are determined solely by the relative costs to the parties of these investments. An insurance function of warranty coverage, of course, is well known. The novelty of the theory is its emphasis on the variety of allocative investments that consumers may make to extend productive capacity and its consideration of the difficulties of drafting warranty contracts to encourage such investments. …

Chat with Paper

AI Agents for this Paper