Aviation, Liability Law, and Moral Hazard

by on February 19, 2013 at 7:30 am in Economics, Law | Permalink

File:Cessna172-CatalinaTakeOff.JPGBy 1994 the threat of lawsuits had driven the general aviation industry into the ground. Cessna and Beech ceased production in the 1990s and the other major player, Piper, went bankrupt. The problem was caused by liability law and the long-tail. Cessna, Beech, and Piper had been producing planes since 1927, 1932, and 1927, respectively, and airplanes last a long time. Thousands of aircraft built in the 1930s and 1940s are actively flown today and the average age of the general aviation fleet (small non-commercial aircraft) is more than 24 years. Liability law also grew stronger in the 1980s and 1990s so aircraft manufacturers found themselves being sued for aircraft that they had produced decades earlier. Essentially, the manufacturers found that they could be sued for any aircraft that they had ever produced.

In 1994, however, Congress passed GARA, the General Aviation Revitalization Act. GARA said that small airplane manufacturers could not be held liable for accidents involving aircraft more than 18 years old. When it was passed a huge stock of potential liability claims were lifted from the manufacturers and the industry was indeed revitalized. GARA also provided an interesting test of moral hazard theory. Usually, when liability is moved from producers to consumers, both the producers and the consumers adjust; the product changes and so does behavior, so it is difficult to parse out the effect of moral hazard alone. In the case of GARA, however, liability was lifted from the manufacturers on planes that they had produced decades earlier and no longer controlled so we can isolate the influence of the liability change on the consumers of aircraft.

My latest paper (with Eric Helland) just appeared in the JLE. 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. Our estimates show that the end of manufacturers’ liability for aircraft was associated with a significant (on the order of 13.6 percent) reduction in the probability of an accident. The evidence suggests that modest decreases in the amount and nature of flying were largely responsible. After GARA, for example, aircraft owners and pilots retired older aircraft, took fewer night flights, and invested more in a variety of safety procedures and precautions, such as wearing seat belts and filing flight plans. Minor and major accidents not involving mechanical failure—those more likely to be under the control of the pilot—declined notably.

GARA thus appears to be a win-win because it revitalized the industry and increased safety. The latter came, in a sense, at the expense of the pilots and owners who now bore a greater liability burden but they were the least cost avoiders of accidents. Moreover, the pilots and owners of small aircraft were big supporters of GARA thus suggesting strongly that prior to GARA liability law for aircraft had been inefficient and destructive.

Roy February 19, 2013 at 7:43 am

Interesting, I have never heard of a lawsuit over a twenty year old car or piece of heavy equipment of that age? I believe I would have heard about lawsuits over 18 year old buildings, so what was so special about aircraft? My assumption is that the NTSB is very distorting, though everytime I fly I truly appreciate their diligence. (The same could be said for the FRA, though that has no equivalent to civil aviation)

If this is all correct, in what other sectors could this be implented in? As far as I can tell it would only applyto durable goods like aircraft and cars, what else lasts 18+ years that would have signifigant liability?

Ray Lopez February 19, 2013 at 8:04 am

Seems then you are misinformed, no offense. Kudos to Alex on this paper. So, again, the message is clear: people respond to incentives. So, an improved patent system will encourage fewer trade secrets, more openness, and more innovation, right Alex? Being first to market by definition only favors the first mover, nobody else. And those studies that show more innovation without patents confuse the ‘capital deepening’ effect of technology: as technology improves beyond the first generation (i.e, the patented invention), it becomes more diverse (since people can see what works, what does not, and improve on it). This has nothing to do with encouraging innovation, it’s just a natural byproduct of capital deepening. Off soapbox now, thanks for reading.

Andrew' February 19, 2013 at 8:40 am

The “more innovation part” is the independent variable.

Andrew February 19, 2013 at 8:46 am

Dependent, I mean, please excuse me. You can change all the other stuff and then we’ll see about the innovation part. The results will probably be different for different industries as Alex has suggested.

PD Shaw February 19, 2013 at 11:17 am

The concept of an absolute (or near absolute) bar to lawsuits was not created for the airline industry. For example, in my state the statute of limitations for building construction is four years from when a person knew or should have known of the defect. In theory that would mean liability could be in perpetuity. But the state also has a statute of repose of ten years, which is more or less an absolute bar to any cause of action ten years after the work was performed. Even then extinguishing the rights of minors before they reach majority is difficult. My state also has an eight year statute of repose on products liability suits. I’m guessing the problem seen here was that some states had indefinite periods to bring lawsuits and forum-shopping allowed plaintiffs to select the more lenient state law.

mulp February 19, 2013 at 2:13 pm

You surely have heard of torts over building design that occurred decades after the buildings were complete, you just don’t remember them.

http://articles.latimes.com/1989-11-05/realestate/re-1195_1_professional-liability-insurance

“Known in the profession as errors-and-omissions coverage, or “E & O,” the insurance is a type of malpractice coverage that protects architects financially from negligence in design and supervision during construction.

“According to a 1987 survey by insurer Victor O. Schinnerer, one of the nation’s largest writers of E & O, 30 liability claims are filed each year for every 100 U.S. architecture firms.

“From the early 1960s to the mid-1980s, he said, the annual number of claims per 100 firms jumped from 12.5 to 42, before declining to 30 in 1987.

“Architects are concerned not only about liability lawsuits regarding current projects, but with projects that have been completed for years.

“In third-party liability, for example, in which a person is injured on a building’s premises–the architect can be sued regardless of how many years have passed since the building was designed and constructed.”

The reason you don’t hear of the lawsuits over building design is they are resolved in State courts because the State laws establish local building standards and enforce those standards in part by local registration of the responsible parties. Note the building standards flow out of the insurers, who operate through national organizations that set industry standards. While NIST has done a great of research on such matters as building safety standards, it writes no regulations, and neither does the Federal government, beyond Federal building standards enforced by whatever the old GSA is today. Any Federal recommendations are incorporated in the insurer’s standard agencies model codes which insurers ensure States adopt as law by threats of higher insurance rates.

Aluminum wiring is not “illegal”, but insurers have made sure you can’t build a new building with it.

On the other hand, a common building material, asbestos, did end up with Congress acting to consolidate the legal action on liability for its use in buildings, making the owners of building liable for safe removal and disposal after decades of torts filed against the asbestos value chain.

Alistair Cunningham February 19, 2013 at 8:10 am

As a private pilot and amateur economist, this is an area I’ve followed closely over the years. I’ve never met a pilot who thought the liability laws were a good idea, and a large number who thought they were the worst thing to ever happen to general aviation. It’s a real example where large companies have the sympathy and support of almost their entire customer base.

Furthermore, if you look back at the lawsuits that did take place, they were rarely pilots suing, they were the families of deceased pilots egged on by what almost every pilot I’ve ever met would consider as parasitic lawyers. They tended to be awarded large payouts by sympathetic juries who saw only a poor grieving family and a rich distant corporation, and who didn’t understand that the overwhelming majority of general aviation accidents are the pilot’s fault.

Rahul February 19, 2013 at 8:18 am

This is one of the sore failings of a jury system I think. How can you ever expect, say, a high-school-dropout housewife to understand the arguments and rule on a complex aircraft-component-design-failure lawsuit.

To me, such cases get jury verdicts based on purely lawyer theatricals, pre-existing personal juror bias and random chance.

Andrew' February 19, 2013 at 8:48 am

Is it still true that the majority of crashes result from forgetting to top off the tank?

Alistair Cunningham February 19, 2013 at 9:00 am

No. The leading cause of general aviation crashes in the USA is what’s called “VFR in IMC”. This is when a pilot who lacks the necessary experience flies into a cloud (Instrument Meteorological Conditions), gets disoriented, and puts the aircraft into a steep descending spiral. It’s remarkably difficult to avoid if you haven’t been trained how to use the gyroscopic instruments. The cure is not to fly in marginal weather conditions unless you’ve completed this training and have a qualification called an instrument rating. Ultimately, what makes a safe pilot is the ability to make good decisions.

Rich Berger February 19, 2013 at 9:07 am

I don’t have a license but used to read Flying magazine. They had a column analyzing accidents and it was sad to read how many were due to pilots trying to make trips in marginal weather to a tragic end. I remember one case where the pilot’s wife pushed him to make a return trip when the weather was deteriorating. That was their last trip.

Alistair Cunningham February 19, 2013 at 9:35 am

Yes, one of the most dangerous things a general aviation pilot can do is tell an important customer “I’ll fly over to meet you, and will arrive at 9am tomorrow”.

Ray Lopez February 19, 2013 at 1:54 pm

The fabled “Coffin Corner”, which even Air France commercial pilots have run into (“high altitude stall”). I think it takes something like 30 seconds for any airplane to become un-flyable, so pilots please avoid bathroom breaks (what do solo pilots do for bathroom breaks? They must have those portable bladder bottles).

Alistair Cunningham February 19, 2013 at 9:31 pm

The coffin corner only affects aircraft at high altitude (say above 30,000 feet), so is never encountered my pilots of light aircraft (which typically have service ceilings between 10,000 and 20,000 feet).

mrpinto February 19, 2013 at 2:50 pm

Lol “forgetting to top off the tank.”

Running out of fuel is a bit more complicated of a problem than that, Andrew. The more you take, the heavier you are. The heavier you are, the more fuel you need. That favors a small reserve.

If weather prevents you from landing at your intended destination, you’ll need to fly to an alternate. That favors a substantial reserve.

Wind, temperature, holding patterns, assigned altitudes and other factors have a major effect on burn rate.

It’s not rocket science, but it’s not a matter of “filling ‘er up.”

Hazel Meade February 19, 2013 at 10:25 am

I think all the jury tends to be concerned with is which entity has the deepest pockets, and an emotional need to compensate the family.
I’m not sure why the pilot’s life insurance isn’t sufficient. Or if he doesn’t have any, why not require pilots to carry some sort of accident insurance.

tummler February 19, 2013 at 11:56 am

Many states will not allow evidence of insurance payments to be presented to the jury. This is commonly referred to as the collateral source rule.

Hazel Meade February 19, 2013 at 2:09 pm

So the jury is positively encouraged to assume that said grieving relatives have no other means of compensation?
Wonderful.

johnhaskell February 19, 2013 at 12:23 pm

I struggle w/ letting juries be involved in civil cases, but this is not to say juries are given carte blanche vis-a-vis liability, damages, etc. Defendant’s can (and usually do) make numerous motions to settle the dispute as a matter of law in which case the presiding judge will make a determination as to whether a jury could find for the plaintiff–there are also issues of bifurcating a trial (which in theory is suppose to simplify the issues, but those trials are still marathons), evidentiary issues and so forth, motions to set aside jury verdicts/awards, and the like.

As far as the complexity of the facts at issue in a case, that can swing both ways. Although lower than a criminal proceeding, plaintiff’s have (typically, save for matters involving res ipsa and similar tort theories) the burden to prove defendant’s liability (actually, breach, duty, cause, and damages). A defendant could then set out on a “battle of the experts” to make the issue so confusing that a jury will be unlikely to find for the plaintiff–of course, paying for such experts is not cheap.

In short, juries do operate within judicial safeguards . . . yet, even w/ those safe guards, I am uneasy with their involvement in civil litigation.

AndrewL February 19, 2013 at 8:51 am

as a result of liability being lifted off of aircraft manufactures, pilots started to wear seat belts?! It is hard to believe that pilots would suddenly start taking life-safety measures just because they could no longer sue manufactures. How can you benefit from a successful lawsuit when you are dead? Hard to believe that people would risk serious injury just as long as they have someone to sue.

Andrew' February 19, 2013 at 10:19 am

It does seem weird. But what if their insurance company simply started jaw-boning them about it?

DocMerlin February 19, 2013 at 10:20 am

“Hard to believe that people would risk serious injury just as long as they have someone to sue.”

People place a price on their own lives. Its not just here either, people in the islamic world are often willing to be suicide bombers for roughly the price of a nice car going to their family.

jdd February 19, 2013 at 10:58 am

That is exactly what I thought, too. This correlation cannot be causation. As a pilot myself, I wouldn’t never take any risk that I could avoid. My instructor used to tell me when practicing engine out procedures that “all I want to do is be able to walk away — that’s your job here.” You don’t have fender-bender aviation accidents. That a solvent Piper exists doesn’t seem to me to (a) even be known to the supposedly more risk averse pilot in command and (b) likely to change any behavior. If you crash a plane then you are probably going to be dead or heavily injured. The ability to recover is immaterial. The only transmission mechanisms for information that you indirectly cause this behavior that I can think of are insurance costs going way up on 19 year old planes and word of mouth among pilots. Perhaps that accounts for some of it. But I suspect there are alternative causes at work that make a lot more sense.

Paul Zrimsek February 19, 2013 at 1:49 pm

As a pilot yourself, you’re taking at least one risk that you can avoid.

mrpinto February 19, 2013 at 2:52 pm

It’s safer than driving…

Besides, you know what he meant.

Jeff Morgan February 19, 2013 at 1:30 pm

I feel the same way. How did behavior (seat belts, flight plans, etc) differ for pilots of 17 year old planes, versus 18 year old planes?

I only read the preview of the paper, but it didn’t look like changes in young aircraft behavior in the post-GARA world were considered. This has to be my own oversight, right?

Alex Tabarrok February 19, 2013 at 3:44 pm

Jeff,

Yes, we did exactly this test in the paper.

Alex

prior_approval February 20, 2013 at 7:54 am

‘Yes, we did exactly this test in the paper.’

Really? – how was the distinction made between increased goverment and private attention to general aviation safety starting in the mid-90s distinguished from a change in liability law?

Though I’ll admit, it isn’t exactly an 8 dollar question.

johnhaskell February 19, 2013 at 9:16 am

“Moreover, the pilots and owners of small aircraft were big supporters of GARA thus suggesting strongly that prior to GARA liability law for aircraft had been inefficient and destructive.”

Then why the change in behavior? If pilots were, presumably, aware of the dangers (thus supporters of GARA), then wouldn’t we see a net neutral change in behavior?

Artimus February 19, 2013 at 9:26 am

Sorry Alex, but as a pilot for over 30 years I must say you’re way off base. Now I did’nt read your paper because as a (cheap) pilot I’m not going to spend $8 to download the PDF. However from what you stated on your blog post I find your premise seriously flawed.
As Alistair replied in the above comment, the overwhelming majority of pilots cannot stand lawyers nor their lawsuits against aircraft companies. Most
lawsuits are initiated by the next of kin after their demise.
I have NEVER met a pilot who based his level of safety on liability laws. Fewer
night flights and more filing of flight plans because of GARA? I was an Instructor and Charter Pilot during that time period and this is news to me. While the liability reforms were certainly welcome and popular I fail to see how they would
have caused pilots to suddenly start flying “safer”.
By the way, this is flying your are talking about, not driving. Seatbelt usage has never been a problem in aviation.

kebko February 19, 2013 at 9:42 am

Boy, Alex must feel stupid that he went to all that trouble measuring all this stuff, when ol’ Artimus coulda straightened him out with one phone call – and given him more accurate information, to boot. ;-)

Underwriter February 19, 2013 at 9:44 am

I am an insurance underwriter, but not a specialist in this market, but I would imagine getting liability coverage would force many corporate plans into changing their fleets. Perhaps more of the 18 year old+ planes end up in private (non-commercial) usage…

Alistair Cunningham February 19, 2013 at 10:05 am

I think this is the case. As a renter of light aircraft, it’s pretty clear that many of the safety related policies that aircraft rental companies have in place are an effort to reduce their insurance premiums. At least one club I used to be a member of (West Valley Flying Club in Palo Alto, California) made it very clear to everyone that the premiums they paid were the lowest around because of their safety record.

Andrew' February 19, 2013 at 10:20 am

18 years then utter and complete dropoff. I’m glad we have a government that is so thoughtful when it comes to helping us create these natural experiments.

Rahul February 19, 2013 at 1:42 pm

As a general issue why do we shy from graduated / tapering scales in policy / legal matters?

e.g. Wouldn’t it make sense to have the penalty for drunk driving as:

“penalty = baseline penalty + constant * (BAC – threshold BAC)”

mw February 19, 2013 at 9:45 am

As soon as we eliminate medical malpractice suits everyone in hospitals will start washing their hands incessantly.

Ray Lopez February 19, 2013 at 2:00 pm

But not using air dryers to dry their hands–only paper towels–recall the MR link to that effect. As for pilots taking more risk if they know there is product liability insurance, this is well known and “Freakonomics” and other econ books talk about how people drive more recklessly if their cars have airbags (or seat belts).

prior_approval February 19, 2013 at 9:55 am

Of course, this also occurred in the mid-1990s –

‘Formed in the mid-1990s, the GAJSC [General Avaition Joint Steering Committee] has a renewed effort to combat GA fatal accidents. The GAJSC is a government and industry group that uses the same approach as the Commercial Aviation Safety Team (CAST). It uses a data-driven, consensus-based approach to analyze safety data to develop specific interventions that will mitigate the root causes of accidents. The group recently proposed 26 safety interventions to address “Loss of Control” during approach and landing.

Other achievements include several Web-based resource guides, including the General Aviation Pilot’s Guide to Preflight Weather Planning, Weather Self-Briefings, and Weather Decision Making, which provides advice to pilots on how to make safe weather flying decisions.

The GAJSC combines the expertise of many key decision makers across different parts of the FAA, various government agencies, and several GA associations. The other federal agencies are National Aeronautics and Space Administration, National Transportation Safety Board (as an observer), and the National Weather Service. Industry participants include Aircraft Owners and Pilots Association, Experimental Aircraft Association, General Aviation Manufacturers Association, National Business Aviation Association, National Air Transportation Association, and others.’ http://www.faa.gov/news/fact_sheets/news_story.cfm?newsId=13672

However, I’m sure that a focused effort to increase general aviation safety, based on the same approach as that concerning commercial aircraft safety, pales compared to the power of changing liability law at the same time.

Because really, who would accept the idea that a broad based increased focus on general aviation safety would lead to greater safety?

wiki February 19, 2013 at 10:03 am

But would it have increased profitability enough to benefit the aviation industry as well? Removing liability for older planes makes it easier for companies to plan and introduce aircraft with safety features that need only last for 20 years with reasonable maintenance instead of playing musical juries with much older planes.

prior_approval February 19, 2013 at 10:51 am

That is an interesting point, and one that also plays out in the world of motorcycling and helmets.

Generally, both older motorcycles and older helmets are not as safe as the latest models (a gross simplification). Part of this is simply aging, something which definitely applies to aircraft.

On the other hand, the most dangerous period for a rider, at least according to the old but nonethless still definitive Hurt Report ( http://en.wikipedia.org/wiki/Hurt_Report – and anyone who rides a motorcycle should read this carefully, PDF link – http://isddc.dot.gov/OLPFiles/NHTSA/013695.pdf ) is the first six months after changing from one motorcycle to another. It makes no difference how much experience the rider has, that first six months learning a new machine are dangerous. Meaning that 5 years of safety improvement may not be worth it compared to the increased risk of an accident.

And in the U.S., American helmet makers like Bell essentially froze their technology at a level which kept them from being successfully sued in the mid 1980s. Of course, non-American helmet makers were not so hobbled, and replacing a (imported) helmet on a regular basis allows one the benefit of better technology.

There can’t be any reasonable question that incorporating new technology improved safety – which was the point of the safety effort started in the mid 1990s for general aviation. And certainly, aircraft manufacturers who no longer needed to set aside reserves and/or pay insurance premiums for older models would be able to do a better job building safer aircraft.

The interplay concerning safety is complex, and liability law plays a role. Just one where trying to tease out any relevance to ‘moral hazard’ is pretty much driven by something other than actual facts.

Cliff February 19, 2013 at 12:08 pm

Wait, what was the difference between American and foreign helmet makers?

prior_approval February 19, 2013 at 1:07 pm

This is based mainly on memory and discussion at Morton’s (though with supporting text below), as my first helmet was from Bell in 1985 – a helmet which did not change for the next decade. What happened can be seen in the quoted passage, along with a bit of reading between the lines –

‘The demand for motorcycles exploded in the 1970s, and as many as 55 domestic companies began manufacturing helmets. But success for the vast majority of helmet producers was short-lived. As damages awarded in product liability cases skyrocketed, it became increasingly difficult for companies to obtain insurance. Distributors and dealers were hesitant to carry a product not covered by insurance. Although product liability concerns forced all but around ten companies to stop manufacturing motorcycle helmets by the mid-1980s, Bell solidified its position in the market by establishing an unparalleled reputation for product safety. Although Bell, like its competitors, faced a number of lawsuits, it was forced to pay only one judgment, for $25,000 in 1977. That record of success, a benefit of having its own testing facilities, would continue well into the 1990s, as Bell won 27 straight cases over a 15-year period.’ http://www.answers.com/topic/bell-sports-corporation

The reason Bell was so successful is winning cases is that they did not change anything – in other words, winning one case with a helmet design made it easier to win a later case involving the same helmet design (the one I had remained unchanged for years). Bell also considered moving to Costa Rica (or possibly some other Caribbean location) to avoid problems, IIRC.

And I have some sympathy for Bell – one lawsuit I remember involved someone dying after hitting a concrete wall head on at 55 mph. There is no helmet which can even begin to provide protection in such a situation. As I learned in the mid-80s MSF course, a helmet is designed to absorb the impact energy of a fall from 6 six feet – which is pretty much how far your head falls to the pavement in a motorcycle wreck, though a motorcycle helmet does offer other forms of protection concerning impact resistance and deformation (though do consider that a bicycle helmet might also be a good idea when discussing energy absorption, as the fall from a bicycle and a motorcycle are identical in that respect).

And back then, Bell allowed you to send a helmet back to be inspected. Something I did twice, once after hitting the road, the second time after the (now spare) helmet fell off on the Dulles Access Road.

But by the later 1980s, Japanese and German helmet makers were introducing all sorts of new features and concepts, and for various reasons, Bell began to fade.

Cliff February 19, 2013 at 10:17 am

It does seem like there is an obvious issue with confounding factors. Did incidents decrease 13% immediately after the law was passed and then stay at the same level?

Alex Tabarrok February 19, 2013 at 3:07 pm

An obvious issue with confounding factors indeed but you don’t get into the JLE by ignoring obvious issues. What we do more specifically is look at how the accident rate for aircraft over the age 18 differed from that of aircraft under 18 and how this difference changed after GARA. What this means is that we control for any change in accident probabilities that occurs over time for all aircraft such as due to better traffic control etc. On top of this we allow for accident probabilities to vary smoothly with age. We use a number of other identification strategies such as comparing 17 and 19 year old aircraft at the same point in time. Results point in the same direction. Not saying any test is perfect but the bread and butter of an empirical economist nowadays is coming up with research designs that control for the obvious confounding factors and a lot of the non-obvious ones as well.

prior_approval February 20, 2013 at 5:52 am

‘What this means is that we control for any change in accident probabilities that occurs over time for all aircraft such as due to better traffic control etc.’

Nope- the same pilot that has owned the same plane for 30 years is unlikely to have benefitted through such things as better traffic control. Or better weather forecasts in the region where that general aviation pilot has flown over decades.

I’m old enough to remember the couple of planes and their ‘airport’ aong Rt. 50, before Rt. 15 – these planes may have been subject or regulation in terms of Dulles (the planes finally vanished from the ever less mowed end of the field), but air traffic control played no role in their coming and going, I’m sure.

Alan Gunn February 19, 2013 at 10:02 am

I doubt that the improvement in accident rates has been caused by pilots having more incentive to fly safely. Moral hazard is likely to be pretty minor when you have to die to cash in on the “insurance.” It seems much more likely that having newer, safer aircraft, especially aircraft with better instrumentation (GPS, weather reporting systems, etc) is the cause. The legislation makes it profitable once more to produce new GA aircraft, which couldn’t be done save for kit manufacturers under the old regime.

Alistair Cunningham February 19, 2013 at 10:18 am

Bear in mind that there’s often another party involved: the company renting the aircraft to the pilot. This company has an incentive to implement strong safety policies regarding frequent pilot retraining and pilot behaviour, and to require renters to agree to these before renting aircraft. This incentive is the promise of lower premiums from insurance companies. In the real world, almost all rental companies do impose fairly stringent safety policies on renters so that they can:

1. Get the cheapest possible insurance premiums, and thus avoid being uncompetitive.

2. Avoid the severe negative publicity of having one of their renters involved in a crash.

These safety policies tend to include frequent mandatory re-training above legal requirements, not flying at night, free cancellations of booking if weather is inclement, and giving pilots a credit card to buy fuel at remote airports.

Hazel Meade February 19, 2013 at 10:16 am

I’m not sure why liability needs to be explicitly limited in law to planes newer than 18 years. Are juries somehow incapable of understanding that as planes age the owner and pilot become more responsible for maintainance and safety of an aircraft? Any product, no matter how well designed, is going to age and as it ages the owner needs to monitor that and decide when to replace parts.
If the problem is capricious juries handing out awards based on who has the deepest pockets, than what we ought to reform is the jury system, not the liability law.

Alistair Cunningham February 19, 2013 at 10:22 am

From reading through some of the court cases at the time, it’s clear that juries had no understanding whatsoever of where the boundaries of responsibility were, and were making awards to the families of dead pilots based purely on sympathy and/or persuasive lawyers.

DocMerlin February 19, 2013 at 10:22 am

“Are juries somehow incapable of understanding that as planes age the owner and pilot become more responsible for maintainance and safety of an aircraft”

The jury will do whatever the lawyers and judge have told them to do.

Urso February 19, 2013 at 11:02 am

Funniest post of the year.

mpowell February 19, 2013 at 12:32 pm

There are serious problems with our jury system. But there are not obviously superior alternatives. So you deal with it’s limitations through laws like this.

Hazel Meade February 19, 2013 at 2:08 pm

What about expert juries?
Why not try product liability suits using people who are skilled in the particular field of manufacture.
In this case, juries composed of pilots, aircraft mechanics, engineers and the like?

Rocco February 19, 2013 at 12:34 pm

Tidbit- There are now some aviation repair facilities that will not work on planes more than 17 years old. They are rare but the ones I know of are in high-demand areas and I’m guessing that their underwriters offer a lower rate for such a policy. An aircraft manufacturer is surely a much richer target for a lawsuit than a maintenance shop.

I find it hard to imagine how GARA liability changes would affect pilots’ behavior, though I can imagine how pressure from insurers could affect maintenance and training. In addition to points about increased safety mentioned above, I would also note that in the wake of September 11 all insurers became much more strict about pilots’ experience and training requirements.

I’m looking forward to spending the 8 bucks and reading the paper :)

Alex Tabarrok February 19, 2013 at 3:08 pm

Anyone who wants the paper can email me and I will send them a copy gratis.

prior_approval.com February 20, 2013 at 7:58 am

So it isn’t actually worth eight dollars?

Academia rears its head, in the end.

Or else this is a test of the idea of what is not priced is not valued.

J1 February 20, 2013 at 9:11 pm

It shifted liability to entities closer to actual aircraft operation. There’s not much Cessna can do to impose greater safety requirements on general aviation, but there’s plenty an FBO can do, especially under the thumb of its insurance company.

collin February 19, 2013 at 12:47 pm

This seems an example of putting the risk from the manufacturer to the insurance that cover the airplane companies (either the ones that rent planes or sell cost of the flight.) So the insurance company will govern better safety policies, the age of the airplane fleet, etc. If you deal with a company with all their fleet of planes over 30 years old, their premiums go through the roof.

decolliber February 19, 2013 at 2:07 pm

As I private pilot (former owner of a PA-140), I agree with those who find it implausible that pilots would decide to fly more safely because their next of kin can no longer sue the manufacturer if the plane is >18. It is very different from Peltzman’s old argument that car drivers drove more dangerously after seat belt laws. Maybe what is going is that wives are sabotaging their husbands’ planes at a lower rate, now that they may not be able to sue the manufacturer when hubby crashes and dies. :)

o. nate February 19, 2013 at 3:01 pm

I agree with the many who have pointed out that it seems to stretch the bounds of rational behavior for pilots to stop life-endangering behavior simply because of smaller potential recoveries for their next-of-kin in the event of a crash. Perhaps the main channel of influence was more due to the law raising awareness of the dangers of older planes.

SOM February 21, 2013 at 8:10 am

Since so many pilots, including myself, disagree with the assertion that pilots fly safer due to liability law, then it obvious to me that Dr. Tabarrok retract his JLE paper and re-issue a modified paper. That assertion may be made by an empirical economist using econometrics without understanding the subject matter enough to make a conclusion based on a cause and effect relation. (per: http://www.auburn.edu/~garriro/j2mismeth.htm). “All respectable texts on statistics and econometrics acknowledge that statistical inference can never identify cause and effect; they warn against interpreting correlation as causation.” Seems to me that is exactly what happened. The empirical evidence may be overwhelming but the assertion, while logical to non-pilots, is not correct.

conrad6 February 19, 2013 at 4:06 pm

I can see a feedback loop here. Supply of new aircraft is artificially constrained (or the selling cost is increased) by the net present value of an infinite liability timeline. So the value and utility of older aircraft is artificially increased. The same effect also applied to new repair parts, which also led to many counterfeit, refurbished to “look new” or mislabeled parts (especially nuts, bolts and other simple parts which are not traceable individually). The questionable parts effect flight safety negatively. Once the infinite liability timeline is removed, prices pop down for new aircraft and parts, displacing some of the older aircraft and more dubious parts. So flight safety improves.

I saw the counterfeit parts problem first hand, as the S-4 (logistics and maintenance officer) of an Army Aviation Battalion 1969-1970.

The military frequently uses aircraft safely far beyond their design lifespan (e.g. B-52 or my own RU-8B). But the military has a very anal approach to long term maintenance. Almost any effort and expense is justified if the replacement aircraft is 10 years in the future (for deployment) and has only a 20% chance of program success.

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