Offering a warranty is an example of:
A) adverse selection.
B) moral hazard
C) signaling.
D) the principal-agent problem.

Question

Quizplus · Accepted Answer

Offering a warranty is a form of signaling as it is a way for the company to communicate to the customer that they have faith in the quality of their product. By offering a warranty, the company is indicating that they are confident in their product's ability to perform well and meet the customer's expectations. This can help to attract customers and build trust in the brand. Adverse selection refers to situations where one party in a transaction has more information than the other and uses this to their advantage, while moral hazard refers to situations where one party takes risks knowing that another party will bear the cost if those risks don't pay off. The principal-agent problem refers to situations where there is a conflict of interest between the goals of a principal (e.g. the owner of a company) and those of an agent (e.g. an employee or manager).

Offering a Warranty Is an Example Of