Hajek Notes - Profitability and Product Quality Economic Determinants of Airline Safety Performance Nancy L Rose February 8 2012 Research Question

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Profitability and Product Quality: Economic Determinants of Airline Safety Performance Nancy L. Rose February 8, 2012 Research Question: Is there a correlation between profitability and safety investments and consequently higher accident/incident rates? - Data included 35 large airlines over the period of 1957 through 1986 o Used to estimate the effect of profitability and other aspects of financial health on accident and incident rates, controlling for operating characteristics that may exert independent rates effects on safety levels o Evidence suggests lower profitability is correlated with higher accident and incident rates (mostly for smaller carrier samples) - Theoretical models (link between financial variables and firms’ product quality/product safety choices) o Cash Flow/Liquidity Constraints on Investment Behavior o Decision-making Near Bankruptcy o Reputation Formation in the Presence of Asymmetric Information - o Used short time series of pre-deregulation data and only at US carriers o Limited statistical relevance o Longer time series of data and larger sets of carriers can sustain more powerful tests to detect correlation between profitability measures and airline accident performance - Factors Affecting Safety Investment Decisions: Insurance, Information Symmetry, Financial Condition (Profitability, Liquidity, Solvency), Safety Regulations (Inspection Intensity, Enforcement) - Safety Inputs: Safety Investments (Maintenance, Company Procedures, Personnel Quality [training, experience], Equipment [type, age, condition]), Airline Operating Experience, Environmental Conditions (Climate, Airport Condition, Congestion), Technology,
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This note was uploaded on 02/09/2012 for the course PHILOSOPHY 375 taught by Professor Heatherdemarest during the Spring '12 term at Rutgers.

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Hajek Notes - Profitability and Product Quality Economic Determinants of Airline Safety Performance Nancy L Rose February 8 2012 Research Question

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