MARKET FORCES AND AIRCRAFT SAFETY: THECASEOFTHEDC‐10

Abstract

The May 25th, 1979 Chicago DC‐10 crash provides the opportunity to test an important proposition in the theory of consumer product safety: Can market forces provide safety when products are too complex to permit buyer prepurchase inspection? This paper combines economic theory with modern finance theory to measure the cost of the crash to shareholders of the plane's manufacturer, McDonnell Douglas. The results indicate that the DC‐10 crash resulted in a $200 million loss to McDonnell Douglas stockholders and that this amount exceeds any reasonable estimate of regulatory or liability costs.

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