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Product Recall and Liability

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  • Xinyu Hua

Abstract

This article examines a firm's incentives to recall its product after learning that the product may harm consumers. It discusses whether courts should protect consumers who do not comply with recalls. Under the "no duty to return" rule, the firm bears the same liability no matter whether it has made a recall or not. The firm then may not recall the product as often as socially desired or provide insufficient reimbursement for consumers' return costs. In contrast, the "full duty to return" rule denies the firm's future liabilities after it makes a recall. More consumers then return the product, which may reduce the firm's incentives to recall the product. We show that the "full duty to return" rule may or may not generate more product recalls or higher social welfare. We also discuss the "partial duty to return" rule, which partially reduces the firm's liability after it makes a recall. The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Xinyu Hua, 2011. "Product Recall and Liability," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 27(1), pages 113-136.
    • Handle: RePEc:oup:jleorg:v:27:y::i:1:p:113-136
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    File URL: http://hdl.handle.net/10.1093/jleo/ewp024
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    Cited by:

    1. Chen, Yongmin & Li, Jianpei & Zhang, Jin, 2017. "Liability in Markets for Credence Goods," MPRA Paper 80206, University Library of Munich, Germany.
    2. Ping Lin & Tianle Zhang, 2022. "Product liability, multidimensional R&D and innovation," Journal of Economics, Springer, vol. 136(1), pages 25-45, June.
    3. Yongmin Chen & Jianpei Li & Jin Zhang, 2022. "Efficient Liability In Expert Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(4), pages 1717-1744, November.
    4. Joaquín Coleff, 2020. "Can consumer complaints reduce product reliability? Should we worry?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 74-96, January.
    5. Soo-Haeng Cho & Victor DeMiguel & Woonam Hwang, 2021. "Cover-Up of Vehicle Defects: The Role of Regulator Investigation Announcements," Management Science, INFORMS, vol. 67(6), pages 3834-3852, June.
    6. Anthony M. Marino, 2021. "Product recall with symmetric uncertainty and multiunit purchases," Journal of Regulatory Economics, Springer, vol. 60(1), pages 1-21, August.
    7. 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.

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