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| Volume 11, No. 1,
June
2012 |
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Supply Chain Quality, Mandatory
Insurance, and Recall Risk |
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Luciana Echazu |
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Faculty of Economics and
Financial Studies, Clarkson University, U.S.A. |
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Mark Frascatore |
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Faculty of Economics and
Financial Studies, Clarkson University, U.S.A. |
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| Abstract |
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If a supplier shirks on quality, the
end manufacturer risks a product recall. The manufacturer can offer
a contract stipulating harsh penalties in this event. Mandatory
insurance may be required if the supplier cannot be compelled to pay
the penalty. |
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Key words:
supply
chain efficiency; quality; moral hazard; mandatory insurance;
product recalls
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| JEL
classification:
L14; L15; L25 |
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