This paper examines how a durable-goods monopolist’s choice of product quality interacts with time inconsistency problems in an environment, where the firm faces an irreversible decision on quality and unit production costs increase in quality. The monopolist may have incentives to choose a...

It is shown how intergenerational risk sharing can be achieved by transfers from the young generation to the old generation such that the young generation will never have an incentive to unilaterally renege on the transfer. This contradicts a claim made in Gordon and Varian (1988).