Product recall with symmetric uncertainty and multiunit purchases
Anthony M. Marino ()
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Anthony M. Marino: University of Southern California
Journal of Regulatory Economics, 2021, vol. 60, issue 1, No 1, 21 pages
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.
Keywords: Product recall; Product refunds; Fines (search for similar items in EconPapers)
JEL-codes: L51 (search for similar items in EconPapers)
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