Profitability and Product Quality - Economic Determinants of Airline Safety Performance #247046

Despite an extensive theoretical literature on product quality choice, there have been few empirical tests of the determinants of firms' quality decisions. This study uses data on the airline industry to investigate financial influences on product safety. Data on 35 large scheduled passenger airlines over the 1957 through 1986 period are 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 effects on safety levels. The results from a broad range of statistical specifications suggest that lower profitability is correlated with higher acci dent and incident rates, particularly for smaller carriers in the sample.