Lehigh University Professor to Discuss Extended Warranty Contracts

Published: Feb 15, 2006 11:21:02 AM
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At 10 a.m. on Friday, Feb. 17, Joe Hartman, head of the Department of Industrial and Systems Engineering at Lehigh University and holder of the George Kledaras Endowed Chair, will discuss a computer model for structuring extended warranty contracts. The one-hour Industrial and Systems Engineering Graduate Seminar will be held in Dunstan 202.

Extended warranties provide piece-of-mind to a consumer by covering the repair cost of any product failure after the base warranty expires. These contracts also provide an additional source of revenue for a manufacturer or third-party provider, such as a retailer. Consumers are often given numerous options when considering a warranty - such as differing lengths and conditional renewals, each with a different cost.

Hartman will examine a number of these warranty contracts with varying conditions and determine a consumer's optimal asset management policy (when to replace an asset and/or whether to obtain an extended warranty) and the optimal price of a warranty given its conditions and consumer behavior. These contracts will be examined using a game-theory context and the assumptions that consumers are risk averse, risk neutral or risk seeking. Finally, Hartman will examine the broader problem of designing a menu of contract options for this varied population of consumers.

Hartman received his doctoral and masters degrees in industrial engineering from the Georgia Institute of Technology and Bachelor of General Engineering from the University of Illinois at Urbana-Champaign. His research interests are in economic decisions analysis and dynamic programming. He is an active member of ASEE, IIE and INFORMS and serves as editor of "The Engineering Economist."