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Economic Analysis: Theory and Practice
 

The effectiveness analysis of economic mechanisms of flight safety management

Vol. 13, Iss. 38, OCTOBER 2014

Available online: 12 October 2014

Subject Heading: Management issues

JEL Classification: 

Pages: 29-41

Varyukhina E.V. Central Aerohydrodynamic Institute n.a. N.E. Zhukovsky, Zhukovsky, Moscow region, Russian Federation
e.varyukhina@yandex.ru

Klochkov V.V. Trapeznikov Institute of Control Sciences, Russian Academy of Sciences, Moscow, Russian Federation
vlad_klochkov@mail.ru

The paper deals with the economic interest of airlines in flight safety improving. After aircraft accidents, aviation companies incur both direct losses, which can be insured, and indirect losses, i.e. aviation equipment downtime, legal costs, increased insurance premiums and so on. The main reason of indirect losses is a slumping demand for air transport service due to passenger fear. There is a widespread belief that the natural market mechanism of increasing flight safety is a sufficient incentive for airlines. However, available studies show that the losses of airlines caused by aviation accidents are quite low. Thus, it is relevant to test the hypothesis of liberal school economists, who state that the market mechanism is sufficient to enhance aviation safety. This requires developing analytical models enabling to perform a general analysis. The statistical data analysis has shown that the hypothesis on the relationship between the level of flight safety and demand for air carriage does not contradict to the actual data. The authors have built a model of flight safety influence on passenger turnover. Based on the model, the authors have performed mathematical modeling and comparison of economic instruments encouraging airlines to improve safety, i.e. market-based incentives, government intervention in the form of compensation payments to the victims of aviation accidents and a combined mechanism, which includes both the losses caused by a decreased demand for air carriage and compensatory payments. The authors demonstrate that at the present stage of civil aviation development government intervention is necessary to enhance flight safety.

Keywords: air transportation, air safety, market mechanism, government regulation, efficiency, mathematical modeling

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