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Market Forces and Commercial Aircraft Safety

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  • Chalk, Andrew J

Abstract

This paper investigates the wealth impact on aircraft manufacturers of crashes involving their aircraft. The author attempts to separate out the regulatory, tort law, and endogenous market components of these costs using stock market data. The results indicate that on average the manufacturer suffers a wealth loss of $21.3 million as the result of a fatal crash in which the structural integrity of the aircraft is at issue. The analysis suggests that not all of this amount can be attributed to regulatory or tort law mechanisms, and that market forces play a role in providing air travel safety. Copyright 1987 by Blackwell Publishing Ltd.

Suggested Citation

  • Chalk, Andrew J, 1987. "Market Forces and Commercial Aircraft Safety," Journal of Industrial Economics, Wiley Blackwell, vol. 36(1), pages 61-81, September.
  • Handle: RePEc:bla:jindec:v:36:y:1987:i:1:p:61-81
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    Cited by:

    1. Bradford, Bruce M. & Robison, H. David, 1997. "Abnormal returns, risk, and financial statement data: The case of the Iraqi invasion of Kuwait," Journal of Economics and Business, Elsevier, vol. 49(2), pages 193-204.
    2. Dionne, Georges & Gagne, Robert & Gagnon, Francois & Vanasse, Charles, 1997. "Debt, moral hazard and airline safety An empirical evidence," Journal of Econometrics, Elsevier, vol. 79(2), pages 379-402, August.
    3. Maria De Paola & Vincenzo Scoppa, 2013. "Consumers’ Reactions to Negative Information on Product Quality: Evidence from Scanner Data," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(3), pages 235-280, May.
    4. Kaplanski, Guy & Levy, Haim, 2010. "Sentiment and stock prices: The case of aviation disasters," Journal of Financial Economics, Elsevier, vol. 95(2), pages 174-201, February.
    5. Carden, Robert & Leach, Sonia E. & Smith, Jeffrey S., 2008. "A market reaction to DOD contract delay -- Does the market reward poor performance," Review of Financial Economics, Elsevier, vol. 17(1), pages 33-45.
    6. Seth Freedman & Melissa Kearney & Mara Lederman, 2012. "Product Recalls, Imperfect Information, and Spillover Effects: Lessons from the Consumer Response to the 2007 Toy Recalls," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 499-516, May.
    7. Bosch, Jean-Claude & Eckard, E Woodrow & Singal, Vijay, 1998. "The Competitive Impact of Air Crashes: Stock Market Evidence," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 503-519, October.
    8. Peter-Jan Engelen, 2011. "Legal versus Reputational Penalties in Deterring Corporate Misconduct," Chapters,in: Does Economic Governance Matter?, chapter 4 Edward Elgar Publishing.
    9. Wolfram Schlenker & Sofia B. Villas-Boas, 2009. "Consumer and Market Responses to Mad Cow Disease," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 1140-1152.
    10. repec:jfr:rwe111:v:8:y:2017:i:1:p:45-58 is not listed on IDEAS
    11. Krieger, Kevin & Chen, Denghui, 2015. "Post-accident stock returns of aircraft manufacturers based on potential fault," Journal of Air Transport Management, Elsevier, vol. 43(C), pages 20-28.
    12. Bowen, Robert M. & DuCharme, Larry & Shores, D., 1995. "Stakeholders' implicit claims and accounting method choice," Journal of Accounting and Economics, Elsevier, vol. 20(3), pages 255-295, December.
    13. Rafael Rob & Tadashi Sekiguchi, 2006. "Reputation and turnover," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 341-361, June.
    14. Simon Board & Moritz Meyer‐ter‐Vehn, 2013. "Reputation for Quality," Econometrica, Econometric Society, vol. 81(6), pages 2381-2462, November.
    15. Dranove, David & Olsen, Chris, 1994. "The Economic Side Effects of Dangerous Drug Announcements," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 323-348, October.
    16. Nancy L. Rose, 1992. "Fear of Flying? Economic Analysis of Airline Safety," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 75-94, Spring.
    17. Becchetti, Leonardo & Ceniccola, Claudia & Ciciretti, Rocco, 2010. "Stock Market Reaction to the Global Financial Crisis: the Role of Corporate Governance and Product Quality Ratings in the Lehman Brothers' Event," Sustainable Investment and Corporate Governance Working Papers 2010/14, Sustainable Investment Research Platform.
    18. Kim, Euisin & Rhee, Mooweon, 2017. "How airlines learn from airline accidents: An empirical study of how attributed errors and performance feedback affect learning from failure," Journal of Air Transport Management, Elsevier, vol. 58(C), pages 135-143.
    19. Gregory Noronha & Vijay Singal, 2004. "Financial health and airline safety," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 1-16.
    20. Walker, Thomas John & Walker, Marcus Glenn & Thiengtham, Dolruedee Nuttanontra & Pukthuanthong, Kuntara, 2014. "The role of aviation laws and legal liability in aviation disasters: A financial market perspective," International Review of Law and Economics, Elsevier, vol. 37(C), pages 51-65.
    21. Andrew Cooke & Wendy Chapple, 1998. "Guilty by Association? The Case of The Karin B Scare," European Journal of Law and Economics, Springer, vol. 5(1), pages 5-12, January.
    22. Schlenker, Wolfram & Villas-Boas, Sofia Berto, 2006. "Consumer and Market Responses to Mad-Cow Disease," CUDARE Working Papers 7164, University of California, Berkeley, Department of Agricultural and Resource Economics.
    23. Morton I. Kamien & Daniel R. Vincent, 1991. "Price Regulation and Quality of Service," Discussion Papers 920, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    24. Kurt Rotthoff, 2010. "Product liability litigation: an issue of Merck and lawsuits over Vioxx," Applied Financial Economics, Taylor & Francis Journals, vol. 20(24), pages 1867-1878.

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