When Bad Quality is Good Policy
1987 (English)Report (Other academic)
We investigate product quality under different market forms (monopoly vs. perfect competition) and under different risk-sharing regimes (replacement warranty vs. no warranty). Because of our particular representation of quality we can determine optimal quality and optimal risk-sharing within one single model. Quality differes between risk-sharing regimes and not between market forms, but the market form determines optimal risk-sharing and therefore optimal quality. it can be optimal to place all risk with the risk-averse consumer instead of with the risk-neutral prducer(s). Given the market form, the risk-sharing regime that is optimal for the producer(s) is also optimal for the consumers.
Place, publisher, year, edition, pages
Stockholm: IIES , 1987. , 38 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 388
IdentifiersURN: urn:nbn:se:su:diva-41569OAI: oai:DiVA.org:su-41569DiVA: diva2:331199