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Product recall with symmetric uncertainty and multiunit purchases

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  • Anthony M. Marino

    (University of Southern California)

Abstract

This paper considers product recall under a perfect regime of strict liability. We show that safety is under supplied given output due to an under internalization of infra-marginal units. If we add a mandatory refund with a possible penalty fee in the event that the product turns out to be unsafe, then while the price increases, there is no change in the allocation, utility, profit or total welfare. The recall procedure is then neutral. We then extend the model to examine optimal fines and minimum output taxes, endogenous proclivity to return a product, endogenous decision to sue in the event of damage and the effects of having the consumer under estimate expected damages.

Suggested Citation

  • Anthony M. Marino, 2021. "Product recall with symmetric uncertainty and multiunit purchases," Journal of Regulatory Economics, Springer, vol. 60(1), pages 1-21, August.
    • Handle: RePEc:kap:regeco:v:60:y:2021:i:1:d:10.1007_s11149-021-09434-3
    DOI: 10.1007/s11149-021-09434-3
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    References listed on IDEAS

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    1. Welling, L., 1990. "A Theory of Voluntary Recalls and Product Liability," Papers 125, Calgary - Department of Economics.
    2. Steven Shavell, 1984. "A Model of the Optimal Use of Liability and Safety Regulation," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 271-280, Summer.
    3. Xinyu Hua, 2011. "Product Recall and Liability," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 27(1), pages 113-136.
    4. A. Michael Spence, 1975. "Monopoly, Quality, and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 6(2), pages 417-429, Autumn.
    5. Yongmin Chen & Xinyu Hua, 2012. "Ex Ante Investment, Ex Post Remedies, And Product Liability," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 845-866, August.
    6. Marino, Anthony M, 1997. "A Model of Product Recalls with Asymmetric Information," Journal of Regulatory Economics, Springer, vol. 12(3), pages 245-265, November.
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    More about this item

    Keywords

    Product recall; Product refunds; Fines;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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