Are Penalties a Deterrent or a “Price”?

We examine whether penalties for long ground delays with passengers kept on board (i.e., lengthy tarmac delays) deter airline violations or are simply treated as a cost of doing business. Using severe-weather cases as a quasi-natural experiment, we compare penalized and non-penalized airlines with difference-in-differences methods. We find modest and inconsistent improvements. Deterrence is weaker when penalties are small relative to airlines’ net incomes, suggesting that some carriers may view them as routine business costs.Read More