Assignment task:
Faced with a reputation for producing automobiles with poor repair records, a number of car manufacturers have offered extensive guarantees to car purchasers (e.g., a five-year bumper-to-bumper warranty on all parts and labor associated with repairs of mechanical problems). How would you characterize this policy? This policy serves as a credible signal from car from car manufacturers that they have improved the quality of their cars in recent years, thereby mitigating the adverse selection problem. This policy provides a credible means for car manufacturers to commit to maintaining high quality. This policy does not provide a credible means for car manufacturers to commit to maintaining high quality; in fact, it is an example of "cheap talk." Both a. and b. are correct. Both a. and c. are correct.