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Supply Chain Quality, Mandatory Insurance, and Recall Risk

Author

Listed:
  • Luciana Echazu

    (Faculty of Economics and Financial Studies, Clarkson University, U.S.A.)

  • Mark Frascatore

    (Faculty of Economics and Financial Studies, Clarkson University, U.S.A.)

Abstract

If a supplier shirks on quality, the end manufacturer risks a product recall. The manufacturer can offer a contract stipulating harsh penalties in this event. Mandatory insurance may be required if the supplier cannot be compelled to pay the penalty.

Suggested Citation

  • Luciana Echazu & Mark Frascatore, 2012. "Supply Chain Quality, Mandatory Insurance, and Recall Risk," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 11(1), pages 1-11, June.
  • Handle: RePEc:ijb:journl:v:11:y:2012:i:1:p:1-11
    as

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    References listed on IDEAS

    as
    1. Reyniers, Diane J. & Tapiero, Charles S., 1995. "Contract design and the control of quality in a conflictual environment," European Journal of Operational Research, Elsevier, vol. 82(2), pages 373-382, April.
    2. George Tagaras & Hau L. Lee, 1996. "Economic Models for Vendor Evaluation with Quality Cost Analysis," Management Science, INFORMS, pages 1531-1543.
    3. Peter Diamond, 2002. "Integrating Punishment and Efficiency Concerns in Punitive Damages for Reckless Disregard of Risks to Others," Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(1), pages 117-139, April.
    4. Richard Arnott & Joseph Stiglitz, 1991. "Equilibrium in Competitive Insurance Markets with Moral Hazard," NBER Working Papers 3588, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    supply chain efficiency; quality; moral hazard; mandatory insurance; product recalls;

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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