7) Faced with a reputation for producing automobiles with poor repair records, a number of American companies have offered extensive guarantees to car purchasers (for example, a seven -year warranty on all parts and labor associated with mechanical problems). a. b. In light of your knowledge of asymmetric information problems, why is this a reasonable policy? Is the policy likely to create a moral hazard problem? Explain.

7) Faced with a reputation for producing automobiles with poor repair records, a number of American companies have offered extensive guarantees to car purchasers (for example, a seven -year warranty on all parts and labor associated with mechanical problems). a. b. In light of your knowledge of asymmetric information problems, why is this a reasonable policy? Is the policy likely to create a moral hazard problem? Explain.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Transaction Costs, Asymmetric Information, And Behavioral Economics

Section: Chapter Questions

Problem 3.6P

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