Consumer liability and firm responsiveness: evidence from automobile recalls

Abstract

AbstractRegulations for product recalls differ internationally. In some countries, the responsibility rests entirely with manufacturers to quickly take corrective measures to ensure consumer safety. In other countries, penalties may also be imposed on consumers who persist in using products that have been recalled. We hypothesize that firm responsiveness (as measured by the time between the product release and the recall) will be higher in markets where product safety regulations that include consumer liability than in markets where product safety regulations focus solely on firms, and that firms that standardize their vehicles across such markets become more responsive in both those markets. We test our hypotheses using data on 569 automobile recalls issued during 2003 to 2019 in four different markets (the US, Australia, Germany, and the UK) that differ in their regulatory focus. Our empirical examination using survival analysis techniques with an accelerated failure time model confirms that the time to recall is shorter in countries that include consumer liability and for standardized vehicles that are sold across countries that include and exclude consumer liability.