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Product Liability and Moral Hazard: Evidence from General Aviation

Eric A. Helland and Alexander Tabarrok
The Journal of Law & Economics
Vol. 55, No. 3 (August 2012), pp. 593-630
DOI: 10.1086/666363
Stable URL: http://www.jstor.org/stable/10.1086/666363
Page Count: 38
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Product Liability and Moral Hazard: Evidence from General Aviation
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Abstract

AbstractProduct liability law reduces the costs of accidents to consumers, thus reducing their incentives to invest in safety. We estimate the impact of tort liability on a subset of consumers who have significant control over the probability of an accident: the consumers of general aviation aircraft. The General Aviation Revitalization Act of 1994 exempted manufacturers of small aircraft from product liability claims when their aircraft reached 18 years of age. We use the exemption at age 18 to estimate the impact of tort liability on accidents as well as on a wide variety of behaviors and safety investments by pilots and owners. The results are consistent with moral hazard. When an aircraft is exempted from tort liability, the probability that the aircraft will be involved in an accident declines. Direct evidence of pilots’ and owners’ behavior is also consistent with moral hazard.

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