International Journal of Business and Economics Volume 11, No. 1 June, 2012

Supply Chain Quality, Mandatory Insurance, and Recall Risk

Luciana Echazu

Faculty of Economics and Financial Studies, Clarkson University, U.S.A.

Mark Frascatore

Faculty of Economics and Financial Studies, Clarkson University, U.S.A.

Abstract

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.

Keywords：supply chain efficiency, quality, moral hazard, mandatory insurance, product recalls.

JEL Classifications：L14, L15, L25.

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