Literature Review Template

Freedman, Kearney, and Lederman. “Product Recalls, Imperfect Information, and Spillover Effects: Lessons From the Consumer Response to the 2007 Toy Recalls.” Review of Economics & Statistics, 2012.

Summary and relevant highlights for retractions transparency project

1. Motivation/Summary

1. Effects of providing information about product quality in markets where consumers cannot verify product quality
2. This paper “empirically investigates whether and how information about the quality of one set of products causes consumers to update their expectations about the quality of others.”

1. Relevant citations and Existing Theory

1. Dranove, David, and Ginger Zhe Jin, ‘‘Quality Disclosure and Certification: Theory and Practice,’’ Journal of Economic Literature 48(2010), 935–963.

1. Method

1. Changes in Toy sales following retraction within-manufacturer and across types of toys
2. Data  

1. “In 2007, the Consumer Product Safety Commission (CPSC) issued 212 recalls of toys and other children’s products, as compared to152 such recalls in 2006, 171 in 2005, and 121 in 2004”

1. Findings

1. Recalls lead to a fall in sales relative to that company’s sales for other types of toys
2. Don’t find evidence of  negative spillovers within-manufacturer to dissimilar toys
3. Find industry-wide spillovers (recalls affect industry of a whole)

1. Other relevant stuff

1. Recall process (pg. 502)

1. Complaint made to CPSC (consumer product safety commission)
2. CPSC launches an investigation
3. If content of complaint confirmed, agency sends letter to the company initiating recall process
4. Firms must respond within 24 hrs
5. Almost all recalls are voluntary

1. [not in the paper but found the recall descriptions on the CPSC website: http://www.cpsc.gov/Recalls/ . They have a standard format recall announcement details that include: # of units, description (of varying detail/length), incidents/injuries, remedy, sold at, manufacturer, manufactured location)
2. No analysis of characteristics of the recall notices and their impact on the sales response