The Law And Economics Analysis Of Defect Product Recall System

Technical progress makes the product structure more complicated day by day, therefore the design and manufacture defects keep rising after products entering the market, which cause serious injury consequence. The traditional product liability system can only make up for the loss after the accident. While product recall system can withdraw defective products and prevent consumers from injury as soon as possible, therefore it has won more favor around the world. In the 1960s, the U.S. began to use the defect product recall system, and since then it has been implemented in many other countries as well.Among all the related literatures about the recall system, foreign research focuses on using historical data to do empirical analysis on the relationship between recall events and corporate performance, while domestic research mainly focuses on discussing how to construct the Chinese defective product recall system. Few literature pay attention to the recall system management mechanism and try to find the best environment and highest welfare for different management patterns, let alone using game theory model to analyze the defect product recall system.On the basis of the domestic and foreign relevant research, this paper discusses why the defect product recall system should be established as well as the position of the product recall system in the entire product liability system. Then use game theory to analyze two different kinds of recall system management model, that is voluntary product certification and mandatory recall, and compulsory product certification and voluntary recall. The result shows that only when corporations recall the products existing serious systemic flaws can achieve maximum total social welfare, especially when product liability system itself doesn't have sufficient punishment, it's particularly important to establish strict product recall system as a supplement to the product damage system. Moreover, as long as the existing product liability system prescribes large amount of compensation, and if new products can bring consumers larger welfare and the expense of voluntary recall is acceptable, establishing the compulsory certification and voluntary recall mechanism will contribute to the maximum welfare of both the whole society and corporations.Based on the above conclusions, it's more convenient for our country to establish the compulsory certification and voluntary recall mechanism to realize the combination of the product recall system and the entire product damage system. And it can also effectively guide and encourage domestic manufacture corporations to recall defect products voluntarily so as to avoid the product liability compensation for the losses and therefore achieve the maximum social welfare. Meantime, establishing corresponding supporting system can reduce the difficulty and cost of voluntary recall, which helps to reduce the operation risk of corporations. Thus setting up simple recall procedures, product liability insurance, product recall insurance and product recall funds mechanism are all advanced management experience worthy to learn.