Product Recalls and Firm Reputation

44 Pages Posted: 2 Nov 2020 Last revised: 14 Jul 2021

See all articles by Boyan Jovanovic

Boyan Jovanovic

New York University - Department of Economics

Date Written: October 2020


Product-recall data and information on stock-price reactions to recalls are used to estimate the value of reputation in a model in which product quality is not contractible. A recall is the result of a product defect that signals low effort. The recall triggers a reduction in the firm's product price and value which then both rise steadily until its next defect occurs. We estimate that reputation accounts for 8.3 percent of firm value and that welfare is 26 percent of its first best level. A policy intervention that attains first best is a recall tax accompanied by a flow subsidy.

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Suggested Citation

Jovanovic, Boyan, Product Recalls and Firm Reputation (October 2020). NBER Working Paper No. w28009, Available at SSRN:

Boyan Jovanovic (Contact Author)

New York University - Department of Economics ( email )

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