A car-producer considers toengage in a specific relation with the company that makes it engines, so that tailor made engine designs can be developed. A staff member warns about negative side effects of a specific relation. He makes two claims:

I.A specific relation forces the firm to engage in a P-A relation with engine- company, which reduces efficiency due to the trade off between insurance and incentives

II.Since the quality of engines is non-verifiable, a specific relation forces the car- producer to negotiate an implicit contract, which is less efficient

Which claim(s) is/are correct

a)Both statements are correct

b)Statement I. is correct

c)Statement II. is correct

d)Neither statement is correct