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

Palfrey, Thomas R. and Romer, Thomas (1983) Warranties, Performance, and the Resolution of Buyer-Seller Disputes. Bell Journal of Economics, 14 (1). pp. 97-117. ISSN 0361-915X. doi:10.2307/3003540.

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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 and 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.

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Palfrey, Thomas R.0000-0003-0769-8109
Additional Information:The Bell Journal of Economics © 1983 RAND Corporation. Spring 1983. We thank two anonymous referees, the Journal's Editorial Board, and participants in seminars at Carnegie Mellon University, Tulane University, and the Federal Trade Commission for helpful comments. We are particularly grateful to Dennis Epple for alerting us to the problems posed by the "no warranty, repurchase" option. This research was supported, in part, by NSF Grant SES82-08397.
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Official Citation:Palfrey, Thomas, and Thomas Romer. 1983. “Warranties, Performance, and the Resolution of Buyer-seller Disputes”. The Bell Journal of Economics 14 (1). [RAND Corporation, Wiley]: 97–117. doi:10.2307/3003540.
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:65016
Deposited On:28 Mar 2016 21:49
Last Modified:10 Nov 2021 23:38

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