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Warranties, Performance, and the Resolution of Buyer-Seller Disputes

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  • Thomas Palfrey
  • Thomas Romer

Abstract

Many disputes between buyers and sellers concern product quality and whether a claim of poor product performance is covered by a warranty issued by the seller. We develop an analytical framework in which average product quality, buyer preferences, production and transaction costs, and the extent to which "true" quality can be observed by buyer and seller interact to determine warranties, product price, and the likelihood of disputes. Using this framework, we examine the impact of various types of dispute resolution mechanisms (DRM's) on these outcomes. We relate features of DRM's such as cost and accuracy, to prices, warranties, and allocative efficiency of the market in which disputes arise.

Suggested Citation

  • Thomas Palfrey & Thomas Romer, 1983. "Warranties, Performance, and the Resolution of Buyer-Seller Disputes," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 97-117, Spring.
  • Handle: RePEc:rje:bellje:v:14:y:1983:i:spring:p:97-117
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    Cited by:

    1. Bruce I. Carlin & Simon Gervais, 2009. "Legal Protection in Retail Financial Markets," NBER Working Papers 14972, National Bureau of Economic Research, Inc.
    2. Matthews, Steven & Moore, John, 1987. "Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening," Econometrica, Econometric Society, vol. 55(2), pages 441-467, March.
    3. Azid, Toseef & Asutay, Mehmet & Burki, Umar, 2007. "Theory Of The Firm, Management And Stakeholders: An Islamic Perspective," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 15, pages 1-30.
    4. He, Jia & Wu, Jing, 2016. "Doing well by doing good? The case of housing construction quality in China," Regional Science and Urban Economics, Elsevier, vol. 57(C), pages 46-53.
    5. repec:oup:rcorpf:v:1:y:2012:i:1:p:68-108. is not listed on IDEAS
    6. Joaqu?n Coleff, 2013. "Can consumer complaints reduce product reliability? Should we worry?," DOCUMENTOS DE TRABAJO 011038, UNIVERSIDAD DEL ROSARIO.
    7. Chester Spatt, 1983. "The objectives of private and public judges," Public Choice, Springer, vol. 41(1), pages 139-143, January.

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