Profitability and Product Quality: Economic Determinants of Airline Safety Performance

Nancy L. Rose

267 citations0/0 files storedJournal of Political Economy

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Aviation Industry Analysis and Trends Occupational Health and Safety Research Law, Economics, and Judicial Systems

Abstract

This study investigates product safety choices in the airline industry, with particular attention to the role of financial conditions. The analysis uses data on 35 large scheduled passenger airlines over the 1957-86 period to estimate the effect of profitability and other aspects of financial health on accident and incident rates. The results indicate that lower profitability is correlated with higher accident and incident rates, particularly for smaller carriers. These findings support a broad class of theoretical models that suggest links between financial conditions and product quality and may have significant implications for the allocation of safety inspection and enforcement resources.

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References

1977Determinants of corporate borrowing 1987Financing Constraints and Corporate Investment 1981The Role of Market Forces in Assuring Contractual Performance 1983Premiums for High Quality Products as Returns to Reputations 1982Consumer Information, Product Quality, and Seller Reputation 1984Econometric Models for Count Data with an Application to the Patents-R&D Relationship 1984Patents and R&D at the Firm Level: A First Look 1984Econometric Models for Count Data with an Application to the Patents-R&D Relationship

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