Efficient Remedies for Breach of Warranty

This article attempts to suggest valuable refinements and extensions of the economic theory of warranty by explicitly considering the choice of remedies for breach of warranty in conjunction with the choice of warranty protection itself. In particular, it offers explanations for the prevalence of replacement terms rather than refund terms in warranties. Economists studying the general issue of breach of contract have noted that the choice of remedy has important implications for risk sharing, renegotiation, transaction-specific investment, and the incentive to breach.5 This article derives much of its insight from the recognition that work on the economics of contract breach has much to say that is relevant to the economics of warranties

Information Externalities and the Social Payoff to Academic Achievement

The thesis of this paper is that wage rates and earnings give misleading signals to public and private decision makers regarding the social benefits of certain kinds of education and training (E&T) investments. The misleading signals are a result of the fact that (1) workers and employers prefer employment contracts which either do not recognize or only partially recognize differences in productivity among workers doing the same job and (2) important dimensions of E&T accomplishment -- the skill, knowledge and competencies actually developed -- are often not signaled to potential employers and therefore have limited influence on the allocation of workers to jobs. The result is that there are significant productivity differentials between workers who receive the same pay for the same job and some of these productivity differentials are related to dimensions of E&T accomplishment that are not efficiently signaled. The paper develops a very simple signaling/implicit contracting model of the labor market. True productivity depends on general intellectual achievement (GIA) and educational credentials but GIA is unobservable, so pay is based on credentials and supervisory assessments of doubtful reliability. As in most signaling models, the labor market tends to overcompensate credentials and undercompensate academic achievement. The next section of the paper refutes the simple wage equals individual MRP assumption by presenting evidence of great variability of productivity across workers paid the same wage and doing the same job. The paper then tests and rejects a weaker hypothesis that can justify an inference that productivity and wage effects of GIA are equal -- namely that deviations of productivity from wages are not correlated with academic achievement. Finally the paper develops a method of estimating the true impact of academic achievement on productivity and applies it to data on the productivity of 31,399 workers. The analysis provides strong support for signaling theory. As predicted by the theory when workers doing the same job are compared and academic achievement (the unobservable) is controlled, the years of schooling signal is negatively associated with relative productivity. When the schooling signal is controlled, academic achievement has a very strong positive effect on relative productivity. This implies that academic achievement has a larger effect on productivity than it has on wages. Academic achievement produces some private rewards for it facilitates entry into higher paying occupations and promotions into better jobs. These are the effects that are captured by standard wage regressions. In addition GIA has effects not picked up by wage regressions. In each job the individual works he/she is doing a better than average job but not receiving an appreciably higher wage as a result. The results imply that schooling raises productivity primarily by improving academic achievement as it is measured by standard tests. When it does not lead to gains on such tests, the credentials that graduates receive tend to be overcompensated. The second major implication of the results is that academic achievement is substantially under compensated if it is not signaled to the market by a credential. This tendency to underreward academic achievement may help explain why American high school students devote less time and energy to learning than their counterparts abroad

Services in Manufacturing Industries: Contributions to Quality and Competition

Motivated by the increasingly important role of services in manufacturing industries, this dissertation examines implications of this trend for quality management and competition by firms engaged in the production of joint product-service offerings. Broadly defined, we study the following research questions: How do the service contracts offered by manufacturers affect product quality? How does consumer demand respond to product quality and service attributes when manufacturers compete on services? How are consumer intentions influenced by product quality and service quality perceptions, and how does consumer heterogeneity influence this relationship? We empirically study these questions in the aerospace, automobile and consumer electronics industries, respectively. In the first study, we examine the impact of Performance-Based Contracting on product reliability in an application in the aerospace industry (aircraft engines), and show that the incentive alignment induced by performance-based contracts positively influences product reliability by different mechanisms. In the second essay, we formulate and estimate a structural model to analyze the impact of service competition and product quality in the U.S. automobile industry. We show that the impact of service attributes (warranty length, service quality) on consumer demand critically depends on the firm\u27s product quality. Finally, in the third essay (consumer electronics industry), we examine the joint influence of product quality and service quality perceptions on consumer intentions toward a brand, and show that consumer heterogeneity plays a significant role in defining this relationship. Collectively, our results suggest that the joint consideration of product and service is essential for the development of an effective competitive strategy and for the management of quality by manufacturing firms

Dynamic Pricing, Advanced Metering, and Demand Response in Electricity Markets

Presents an overview and analysis of the possible approaches to bringing an active demand side into electricity markets. Part of a series of research reports that examines energy issues facing California

Rethinking Electricity Restructuring

Electric utility restructuring was initiated in the 1990s to remedy the problem of relatively high electricity costs in the Northeast and California. While politicians hoped that reform would allow low-cost electricity to flow to highcost states and that competition would reduce prices, economists wanted reform to eliminate regulatory incentives to overbuild generating capacity and spur the introduction of real-time prices for electricity. Unfortunately, high-cost states have seen little price relief, and competition has had a negligible impact on prices. Meanwhile, the California crisis of 2000-2001 has led many states to adopt policies that would once again encourage excess capacity. Finally, real-time pricing, although the subject of experiments, has yet to emerge. Most arresting, however, is the fact that restructuring contributed to the severity of the 2000-2001 California electricity crisis and (some scholars also argue) the August 2003 blackout in the Northeast, without delivering many efficiency gains. The poor track record of restructuring stems from systemic problems inherent in the reforms themselves. We recommend total abandonment of restructuring and a more thoroughgoing embrace of markets than contemplated in current restructuring initiatives. But we recognize that such reforms are politically difficult to achieve. A second-best alternative would be for those states that have already embraced restructuring to return to an updated version of the old, vertically integrated, regulated status quo. It's likely that such an arrangement would not be that different from the arrangements that would have developed under laissez faire

The effect of lockup and persuasion on online investment decisions: an experimental study in ICOs

Many firms use social media (SM) to solicit online investments. In this study, we examine the interaction between SM attributes and online-investment attributes to determine how this interaction shapes users’ investment decisions. Specifically, we investigate initial coin offerings (ICOs) as an application domain of distributed ledger technology for peer-to-peer investment. We use signaling theory to develop a context-specific explanation for how the interplay of persuasion signals found in SM and technology-enforced lockups shapes individuals’ ICO investment decisions. To evaluate this interplay, we conducted a 2 × 2 factorial experiment with 473 participants. The results show that when an investment does not require a technology-enforced lockup, persuasion signals encourage investments in ICOs; however, when an investment requires a technology-enforced lockup, persuasion signals do not affect investments in ICOs. Furthermore, our analyses suggest that combining a technology-enforced lockup and persuasion signals reduces the ICO’s plausibility. This is the first study to investigate how the willingness to invest in ICOs is influenced by the relationship between technology-enforced lockups and persuasion signals. The findings have practical implications for individuals attempting to make sound decisions on ICO investments, policymakers regulating online investments, and firms seeking to attract investors

Strategic Positioning in Converging Technology Markets—The Clyp Case

This case is set in the market for Internet telephony software, which emerged as the result of the convergence of traditional telecommunications technology with new Internet-based speech technology. Clyp is the provider of a software-based IP-PBX, a public branch exchange, which allows companies to set up and self-manage an internal IP-based telephony network, whereby telephony and data share the same computer network infrastructure. Clyp finds itself confronted with an increasingly competitive and converging market. Its growth rates have fallen behind market average, and its product hasn’t seen innovative changes for some time. The case is targeted at Postgraduate (master’s-level) students in (business) information systems and strategic (technology) management. Its main aim is to facilitate learning on strategic positioning and business model analysis in the faces of converging technology markets and the unique characteristics of a software company. The case lends itself to a three-step analysis: (1) business model analysis, (2) market analysis and strategic positioning, (3) identification of strategic options

What Do We Know About Real Estate Brokerage?

Many facets of real estate brokerage have been examined in studies appearing in the literature over the last several years. This review attempts to organize the research around six questions concerning the brokerage industry: (1) What is the nature of the market for brokerage services and how does it influence the individual firm; (2) What factors determine broker and agent compensation; (3) How does brokerage participation influence time on the market and price; (4) Is the brokerage market efficient and equitable;(5) Must brokerage firms assume greater liability; and (6) How do brokerage markets vary internationally. In examining each question, the review points out the major focus of the research and summarizes important findings. Its purpose is to identify key issues facing the brokerage industry and suggest avenues for future study.