Why Do Automakers Initiate Recalls? A Structural Econometric Game

Abstract

Are automakers averse to consumer complaints or to the government recalls they attract? We study this question with 8,439 manufacturer recalls, 5,685 government recalls, and 976,062 SaferCar complaints. The government's SaferCar program enables consumers to report quality issues. Mining the text of these reports, we generate 48 dynamic defect variables, such as Crash, Fire, and Injury. We find our variables significantly predictive of the recall decisions. We model the agents' joint recall decisions as an asymmetric dynamic discrete choice game. We estimate each agent's underlying recall, preemption, and defect cost parameters. Our structural estimates imply (i) there is a little overlap in the sets of products the agents recall and in the types of complaints they respond to, (ii) the cost of a recall does not depend on who initiates it, and (iii) auto manufacturers recall faulty products to avoid receiving defect reports but not to preempt anticipated government recalls.

Keywords: auto recalls, dynamic games, structural estimation