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Following Thomas Off a Cliff

The product recalls of 2007 covered 276 toys and focused primarily on toys manufactured in China, including Thomas the Tank Engine. A working paper by Seth Freedman, Melissa Kearney, and Mara Lederman examines the effects of those recalls. They find, unsurprisingly, that Christmas sales were lower in 2007 for the types of toys that were recalled. But they also found that unaffected manufacturers also lost sales, suggesting that the recalls prompted widespread consumer doubts about toy safety. “One implication of this,” the authors write, “is that toy manufacturers should have incentives to invest in a set of common industry standards since each is at risk of being ‘punished’ for their rivals’ mistakes.” [%comments]