A simple way to ease the pain of airline overbooking

That’s an improvement, but the amounts are still too low. For many passengers, being bumped is far worse than an inconvenience. It means that they will miss a wedding, a family celebration, the start of a romantic vacation or an important business meeting that cannot be rescheduled. (I know two people who were involuntarily bumped from a flight that was supposed to begin their only vacation of the year — and who could not find any alternative flight during the relevant week.)

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True, $650 and $1,300 are a lot of money, but for some passengers, those amounts are not nearly enough. What’s worse, many airlines do not offer cash compensation unless passengers explicitly demand it; instead, they just give people the same voucher given to those who are voluntarily bumped.

In 1968, economist Julian Simon offered an ingenious solution. Whenever planes are overbooked, airlines should run an auction, in which passengers specify the lowest amount they would accept to be bumped, and airlines take the lowest bidders.

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