Following on from my earlier post today …

Perhaps a little more worrying was a news program I watched today that showcased a department store that specialised in selling unclaimed baggage. The Alabama store has a web site and deals with major airlines to purchase baggaged unclaimed for 90 days. So the airlines are getting paid not to match baggage with owners.

Normally, economists are pretty happy about re-sale markets. After all, if there is baggage unused, then someone who finds ways to use it seems to be creating efficiency. In this case, however, there are real concerns for the incentive effects on airlines to actually do the job themselves. It is bad enough as it is with international agreements limiting liability to $600 per bag (read the fine print on your airline ticket). But add to that a payment for not finding matches and it is only worse. Wouldn’t it be better for unclaimed baggage to be donated to charity rather than sold? That would be equally efficient but without the extra unclaimed incentives.