Toy Recalls and Public Choice

"Every industry or occupation that has enough political power to utilize the state will seek to control entry." -George j. Stigler, Theory of Regulation CNN.com recently reported that the Consumer Product Safety Commission has released its top ten toy recalls, coinciding with the annual holiday gift-buying spree. The list affects such toy giants as Hasbro (Nerf) and Mattel. Even Allen Iverson's toddler shoes produced by Reebok are being recalled for chocking hazards (ironically, Iverson is not the Answer for your infant's shoe needs). How would Stigler understand such bureaucratic action? At first glance, such safety regulation would seem incompatible with Stigler's analysis. After all, he writes, "Regulation is acquired by the industry and is designed and operated primarily for its benefit." Why would the toy industry want their toys recalled? How can we understand recalls through the public choice microscope? The answer lies in barrier entries and marketing. First, by creating such high standards for production, established toy producers raise the fixed costs of producing toys, therefore increasing the costs it takes to break into the toy market. Established firms already understand the correct ways to produce safe toys, having dealt with the regulations since they were first constructed. In this light, it is odd to see toy giant Mattel on the recall list, but let's remember that Mattel produces hundreds of toys a year; one recall has to be expected. Not all toy lines will meet standards, especially when a "rigid plastic" is considered unsafe. In summation, high safety standards deter potential toy producers, erecting an entry barrier. Secondly, high standards produce marketing ability. Those firms who are publicly recalled get bad press, which implicitly implies good press for those firms not recalled. Negative effects on a firm are not sought through regulation, but firms may seek regulation to produce negative effects on competitors or possible competitors. Another way to view this regulation is from the opposite side, not from the firm's lense but from the bureau's. By publicly announcing recalls, the Consumer Product Safety Commission proves to their funder (Congress) that they are producing their output (safety) and therefore deserve their budget. Somewhere, Weingast and Moran are smiling. -Brett Jerasa