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Profitability and Product Quality: Economic Determinants of Airline Safety Performance

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  • Rose, Nancy L

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 thirty-five 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. Copyright 1990 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 98 (1990)
Issue (Month): 5 (October)
Pages: 944-64

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Handle: RePEc:ucp:jpolec:v:98:y:1990:i:5:p:944-64

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Web page: http://www.journals.uchicago.edu/JPE/

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Cited by:
  1. Dionne, Georges & Artis, Manuel & Guillen, Montserrat, 1996. "Count data models for a credit scoring system," Journal of Empirical Finance, Elsevier, vol. 3(3), pages 303-325, September.
  2. David A. Matsa, 2011. "Running on Empty? Financial Leverage and Product Quality in the Supermarket Industry," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 137-73, February.
  3. Dionne, G. & Gagne, R. & Gagnon, F. & Vanasse, C., 1993. "Debt, Moral Hazard and Airline Safety : An Empirical Evidence," Cahiers de recherche 9309, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  4. Gordon M. Phillips & Giorgo Sertsios, 2011. "How Do Firm Financial Conditions Affect Product Quality and Pricing?," NBER Working Papers 17233, National Bureau of Economic Research, Inc.
  5. Shao, Pei-Chi & Chang, Yu-Hern & Chen, Hubert J., 2013. "Analysis of an aircraft accident model in Taiwan," Journal of Air Transport Management, Elsevier, vol. 27(C), pages 34-38.
  6. Oster, Clinton V. & Strong, John S. & Zorn, C. Kurt, 2013. "Analyzing aviation safety: Problems, challenges, opportunities," Research in Transportation Economics, Elsevier, vol. 43(1), pages 148-164.
  7. Wang, Zuozheng & Hofer, Christian & Dresner, Martin E., 2013. "Financial condition, safety investment and accident propensity in the US airline industry: A structural analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 49(1), pages 24-32.
  8. Betancor, Ofelia & Rendeiro, Robert, 1999. "Regulating privatized infrastructures and airport services," Policy Research Working Paper Series 2180, The World Bank.
  9. Squalli, Jay, 2009. "Restorative advertising in the airline sector," Journal of Air Transport Management, Elsevier, vol. 15(1), pages 47-51.
  10. Haunschild, Pamela & Ni, Bilian, 2000. "Learning from Complexity: Effects of Accident/Incident Heterogenity on Airline Learning," Research Papers 1621, Stanford University, Graduate School of Business.
  11. Nancy L. Rose, 1991. "Fear of Flying? Economic Analysis of Airline Safety," NBER Working Papers 3784, National Bureau of Economic Research, Inc.
  12. Chang, Yu-Hern & Yeh, Chung-Hsing, 2004. "A new airline safety index," Transportation Research Part B: Methodological, Elsevier, vol. 38(4), pages 369-383, May.
  13. Keeler, Theodore E., 1993. "Highway Safety, Economic Behavior, and Driving Environment," University of California Transportation Center, Working Papers qt9c27z2z1, University of California Transportation Center.
  14. Chen, Yongmin & Gayle, Philip, 2013. "Mergers and Product Quality: Evidence from the Airline Industry," MPRA Paper 51238, University Library of Munich, Germany.
  15. Raghavan, Sunder & Rhoades, Dawna L., 2005. "Revisiting the relationship between profitability and air carrier safety in the US airline industry," Journal of Air Transport Management, Elsevier, vol. 11(4), pages 283-290.
  16. Kjell Hausken, 2013. "Exchange of goods while investing into production and safety," Operations Research and Decisions, Wroclaw University of Technology, Institute of Organization and Management, vol. 1, pages 29-35.
  17. Jennifer Brown & David A. Matsa, 2012. "Boarding a Sinking Ship? An Investigation of Job Applications to Distressed Firms," NBER Working Papers 18208, National Bureau of Economic Research, Inc.
  18. Morrison, Steven A. & Winston, Clifford, 2008. "The effect of FAA expenditures on air travel delays," Journal of Urban Economics, Elsevier, vol. 63(2), pages 669-678, March.

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