Product Recalls, Imperfect Information, and Spillover Effects: Lessons from the Consumer Response to the 2007 Toy Recalls / Seth M. Freedman, Melissa Schettini Kearney, Mara Lederman.

Format:

Book

Author/Creator:

Freedman, Seth M.

Contributor:

National Bureau of Economic Research.

Kearney, Melissa Schettini.

Lederman, Mara.

Series:

Working Paper Series (National Bureau of Economic Research) no. w15183.

NBER working paper series no. w15183

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Product Recalls, Imperfect Information, and Spillover Effects

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

In 2007, the Consumer Product Safety Commission (CPSC) issued 276 recalls of toys and other children's products, a sizeable increase from previous years. The overwhelming majority of the 2007 toy recalls were due to high levels of lead content and almost all of these toys were manufactured in China. This period of recalls was characterized by substantial media attention to the issue of consumer product safety and eventually led to the passage of the Consumer Product Safety Improvement Act of 2008. This paper examines consumer demand for toys following this wave of dangerous toy recalls. The data reveal four key findings. First, the types of toys that were involved in recalls in 2007 experienced above average losses in Christmas season sales. Second, Christmas sales of infant/preschool toys produced by manufacturers who did not experience any recalls were about 25 percent lower in 2007 as compared to earlier years, suggesting industry-wide spillovers. Third, a manufacturer's recall of one type of toy did not lead to a disproportionate loss in sales of their other types of toys. And, finally, recalls of toys that are part of a brand had either positive or negative effects on the demand for other toys in the property, depending on the nature of the toys involved. Our examination of the stock market performance of toy firms over this period also reveals industry wide spillovers. The finding of sizable spillover effects of product recalls to non-recalled products and non-recalled manufacturers has important implications for regulation policy.

Notes:

Print version record

July 2009.