Food safety, voluntary recall and firm reputation

Abstract

AbstractProduct recalls are direct remedies for producers in case of food safety problems. Unlike in the United States or other developed countries, in China, voluntary recalls are rarely documented in the food sector. The purpose of this paper is to address two questions: (1) why do firms adopt different recall strategies in different countries; (2) under what circumstances can voluntary recall help firms build up their food safety reputation? Based on the theory of collective reputation, we develop a dynamic model to incorporate firms' recall strategy and investigate the impact of such a strategy on industry collective reputation. The model takes into account production hazards: producers' lapses in food safety despite good‐faith efforts. Our results show that voluntary recall helps a firm to maintain a good historical record. Hence, firms are likely to achieve a high level of collective reputation under voluntary recall. However, a firm is willing to initiate voluntary recall only if the collective reputation is high enough. This explains the current situation in China: as consumers show little trust (belief in collective reputation is low), firms cannot recover the recall loss and thus have no incentive to initiate a voluntary recall.