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The recent publicity with regard to commercial airline accidents and near accidents has sparked new debate over the issue of safety in the industry under deregulation, with the main issue being the unregulated market's ability to impose significant penalties for poor safety attitudes. This study shows that although there are large movements in the price of airline stocks subsequent to accidents, the market imposed costs do not provide a direct motivation for enhanced safety performance. Instead, the market's reaction to airline accidents is based on the nature of airline stocks as short term investment tools. It is necessary, therefore, to continue to carefully evaluate the role of government in the promotion of airline safety in a deregulated environment. One cannot assert, without qualification, that free market forces, in and of themselves, will provide individual firms with the impetus to provide the socially optimal level of safety performance.


Copyright 1991 Transportation Research Forum

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Journal of the Transportation Research Forum

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Scheraga, C. A., and S. Ornstein. "Market forces and airline safety: an empirical reevaluation." In Journal of the Transportation Research Forum, vol. 31, no. HS-041 177. 1991.

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