The relationship between market forces and product safety in the context of the commercial passenger air travel market was investigated. The analysis was based on a detailed review of the events surrounding three airline accidents, each resulting in a substantial number of fatalities, and the subsequent investigations.

The presence or absence of statistically significant market impacts of the accidents on aircraft manufacturers and airlines was determined using a combination of event analysis and the market model of modern finance theory. For a period following each accident, daily and cumulative abnormal stock market returns (i.e., returns not explained by pre-accident market trends) were calculated for the three domestic commercial aircraft manufacturers, the airline involved, and the major airline carrier industry.

The results indicated that market forces exist that provide an incentive for manufacturers and airlines to devote resources to product safety, even though it is not possible for consumers to rationally evaluate the level of safety being provided, due to the inherent complexity of the products. The calculated market impacts generally conformed to expectations, in terms of sign and significance, and varied depending on the primary cause of a particular accident. However, the results with respect to the individual airlines involved in each accident did not support the hypotheses in several cases, indicating that other market, regulatory, or judicial factors may have had an impact on the calculated abnormal stock market returns.

A description of the background theory, the methodology used, and the detailed results is included.