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Dynamic Cash Management of Warranty Reserves

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  • Cigdem Gurgur

Abstract

The objective in warranty reserve management is to cover contingent liabilities that arise from warranty obligations. Maintaining excess reserves would cause opportunity cost, whereas depleting the reserve would necessitate finding emergency funds. In this article we propose a policy rule to guide cash management of warranty reserves for an infinite horizon that involves periodic reviews. At the beginning of each period the decision maker determines how much to add to or subtract from the fund and how much to contribute after each sale. Numerical examples show how the optimal control variables change in response to change in problem parameters.

Suggested Citation

  • Cigdem Gurgur, 2011. "Dynamic Cash Management of Warranty Reserves," The Engineering Economist, Taylor & Francis Journals, vol. 56(1), pages 1-27.
    • Handle: RePEc:taf:uteexx:v:56:y:2011:i:1:p:1-27
    DOI: 10.1080/0013791X.2010.548908
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    Cited by:

    1. Biase di Giuseppe & Guglielmo D'Amico & Jacques Janssen & Raimondo Manca, 2014. "A Duration Dependent Rating Migration Model: Real Data Application and Cost of Capital Estimation," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(3), pages 233-245, June.
    2. Wang, Xin & Xie, Wei & Ye, Zhi-Sheng & Tang, Loon-Ching, 2017. "Aggregate discounted warranty cost forecasting considering the failed-but-not-reported events," Reliability Engineering and System Safety, Elsevier, vol. 168(C), pages 355-364.
    3. Wei Xie & Lijuan Shen & Yuanguang Zhong, 2017. "Two-dimensional aggregate warranty demand forecasting under sales uncertainty," IISE Transactions, Taylor & Francis Journals, vol. 49(5), pages 553-565, May.
    4. Cao, Zixia, 2022. "Brand equity, warranty costs, and firm value," International Journal of Research in Marketing, Elsevier, vol. 39(4), pages 1166-1185.

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