The aircraft engine maintenance example is instructive for other reasons: airlines have strong financial, legal, and moral incentives not to kill hundreds of people, and their passengers obviously agree with this, as do the crew of the aircraft, so all the incentives should be aligned. But they still fucked up.
It turned out that some airlines took shortcuts that did not actually harm the integrity of the engine mounting, while American Airlines and some others did dangerously crack the mounting and leave it vulnerable to failure on take off, as eventually happened.
But this damage could have been noticed with regular inspections! They used a shortcut procedure – despite warnings from the aircraft manufacturer – and did not check to ensure that the shortcut was safe.
Once again if people actually did their damn jobs we wouldn’t need regulation, but believing that the market will accurately price risk in its absence is just silly.
Ah, but here’s the trick: Corporations are not unified agents. While Tumblr Airlines might have incentive not to destroy aircraft through negligence, killing hundreds, and customers of Tumblr Airlines might have incentive not to die horribly due to lack of maintenance, Executive Todd does not personally lose $400 million when the aircraft is destroyed and can effectively extract the money ‘saved’ by cutting maintenance and move on before the consequences can catch up to him. Also, each additional dollar he earns feels less real, and its loss will hurt him less dearly than the dollar before it.
Also he’s not fully rational because he’s still human.