McDonald's Shrek glasses: Do markets discourage bad products?

How cadmium got into McDonald's Shrek glasses isn't clear. Neither is it clear that markets always give companies the right incentives to avoid defective products.

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    A McDonald's Shrek glass of Rumpelstiltskin is displayed in Palo Alto, Calif., June 4. The company issued a voluntary recall of the Shrek glasses after cadmium was discovered in their painted design. But does a market economy always provide companies the right incentive to provide safe products?
    Paul Sakuma/AP
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Are all products lemons? When I taught intro econ, I'd give the example of the hot dog seller. If she sells you a "bad dog", you know it two hours later and you are sick the next day. In this case, quality is immediately verifiable and the seller knows this. Since she hopes to sell you one hot dog each day, she has the right incentives to provide quality. But, does this logic always hold?

In the case of shrek glasses there could be a long latency period and this means that establishing "cause and effect" will be tricky at best. If we can't figure out who shot you --- how can we hold the bad guy accountable?

The lawyers will hope that ex-post remedies such as liability will provide ex-ante incentives for quality -- I have mixed feelings about this. Smart firms know how to configure their operations to protect themselves, lawsuits drag on forever.

As this LA Times piece highlights, in the case of the Shrek glasses --- nobody can explain why cadmium is in the glasses. But somebody in the production process introduced this. Given Europe's aggressive REACH regulation to reduce the chemicals embodied in consumer products, it appears unlikely that their producers would have introduced this stuff. Our toys are not allowed to have cadmium in them but kid's drinking glasses are not toys so the ban did not cover the glasses. This distinction sounds silly to me but it appears that some developing country must have introduced this stuff into the supply chain but the LA Times article hints that a cone of silence is covering up this information.

Now, I agree that a product produced in 9 different nations could have a very long and complicated "label" if each product was required to tell its autobiography listing its life journey from birth and creation into the final consumer's hands but such information would be useful. My wife won't buy fruit imported from certain countries. Consumers can be trusted to make better decisions with more information. Maybe products need to have hypertext on them so that we can click it to read more about the details of the product if we seek this information?

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