𝔖 Bobbio Scriptorium
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The price of quality claims

✍ Scribed by Charles S. Tapiero

Publisher
John Wiley and Sons
Year
2010
Tongue
English
Weight
106 KB
Volume
27
Category
Article
ISSN
1524-1904

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✦ Synopsis

Quality claims and quality in fact of financial and industrial products as well as financial and business services are essential to entice and attract customers. For these reasons, firms are often tempted to assert claims that might or might not be met. These claims have risks which cannot always be prevented when interpreted as a 'sure thing' while in fact, quality performance is probabilistic. This paper considers a financial (utility based) approach to pricing a quality claim. To do so, we assume that ex-ante, a true quality performance is defined by a density function while claims are advertised-setting expectations for a quality performance. On the basis of these assumptions we determine the price associated with such claims.

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## Abstract We advance a model of the tradable permit market and derive a pricing formula for contingent claims traded in the market in a general equilibrium framework. It is shown that prices of such contingent claims exhibit significantly different properties from those in the ordinary financial