Hi Joe,
This is awfully interesting:
Debt, moral hazard and airline safety
An empirical evidence
by Georges Dionne
Robert Gagne............robertg_at_crt.umontreal.ca
Francois Gagnon
Charles Vanasse
Ecole des Hautes Etudes Commercial
Univesity of Montreal
In: Journal of Econometrics 79 (1997) 379-402
Abstract:
For many years, there has been a proliferation of theoretical articles on
ex-ante moral hazard without any strong empirical measure of its effect
on resource allocation. In this article, we present a detailed analysis
of the relationship between the financial structure of airlines and the
private safety decisions of managers. We show that an increase in the
debt equity ratio is theoretically ambiguous on safety: there is a
trade-off between efficiency in investment and moral hazard. All
estimated models do not reject the Poisson distribution assumption. Many
financial variables are significant when explaining the distribution of
accidents. More particularly, our results indicate that the moral hazard
effect on safety is dominated by the investment effect for carriers in
good financial conditions, while themoral hazard effect dominates for
those experiencing financial difficulties.
Happy reading
Jean LaRoche
Aero Innovation
Montreal