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- Publisher
- Wiley
- Copyright
- © 2013 Wiley Periodicals, Inc.
- ISSN
- 1058-6407
- eISSN
- 1530-9134
- DOI
- 10.1111/jems.12001
- Publisher site
- See Article on Publisher Site
Abstract
Using data from the vehicle resale market, I test consumer responsiveness to large‐scale product recalls that are caused by safety problems. The used‐vehicle prices of Toyotas are compared to the used‐vehicle prices of the other major domestic and foreign manufacturers. The results quantify the losses suffered by Toyota vehicle owners in secondary markets due to the 2009–2010 safety recalls of more than 9 million Toyota Motors vehicles. The treatment effect of a recall is measured using panel data with a difference‐in‐differences estimation approach that allows for time‐varying treatment effects and serial correlation. I find that this recall episode had negative effects in the resale market for automobiles that were quantitatively small (less than 2% of the vehicle’s resale value), statistically indistinguishable from zero, and short lived (did not persist beyond December 2009). A comparison with Audi’s recalls in the 1980s of vehicles with sudden unintended acceleration suggests that the extent to which a company’s reputation is established is more important than whether or not a company has a reputation for producing high‐quality products.
Journal
Journal of Economics & Management Strategy – Wiley
Published: Mar 1, 2013