Working Paper: NBER ID: w15183
Authors: Seth M. Freedman; Melissa Schettini Kearney; Mara Lederman
Abstract: 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.
Keywords: product recalls; consumer response; spillover effects; toy industry; safety regulation
JEL Codes: D12; D18; D8; H1; K0; L15; L2; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Toy recalls in 2007 (Y90) | Decrease in sales of recalled toys (D18) |
| Toy recalls in 2007 (Y90) | Decrease in sales of non-recalled toys (D18) |
| Recalls of one type of toy (D18) | No disproportionate decrease in sales of other types of toys from the same manufacturer (L68) |
| Manufacturers with recalls (L62) | Higher sales in unaffected categories (Y90) |
| Toy recalls (Y90) | Negative impacts on sales of similar toys (F61) |
| Toy recalls (Y90) | Positive shifts in demand towards unaffected categories (D12) |
| Toy recalls (Y90) | Consumer intent to reduce toy purchases (D19) |