Monday, July 24, 2006

Lost and sold

There was this interesting question about sales that a person had asked Tim Harford on one of his “Dear Economist” columns.

The question “I want to sell my lost bicycle in its lost state and I couldn’t. How do I do it?”

Well it is a bicycle lost, meaning you don’t anymore own possession of. So how on earth would you want to transfer ownership of something you don’t own (at least at the moment) to another person?

Now, for Tim’s answer…

“Economists are always looking for new ways to broaden and deepen the world of markets and there is no doubt that this market should create value by shifting ownership of the missing bike to someone willing to bear the risks.

You presumably need one bike with certainty, and only one, and so are unlikely to value ownership of a contingent bike. On the other hand, some investors might well welcome the opportunity to buy the right to a thousand missing bicycles for just ₤30.

So - if eBay will not support your sale, what is the appropriate market? Perhaps you should try to sell the bicycle to the police. They are well placed to increase the possibility that the bike is found, and so they should be willing to pay a decent price...”

I was reminded of the independent debt collectors for the multinational banks back in India.

In India the multinational banks appoint independent agencies (normally the thug or ruffian types) to collect their bad debts (before they are declared so in their account books) or to simply put it, collect their debt from the rouge customers who don’t pay-up. These agencies get paid a commission every time they collect monies from these rouge customers. This model / concept is pretty similar to what has been spoken about by Tim in the bicycle case.

Here you transfer the risk to another entity, if at all he overcomes the risk factors and manages to gain possession of the bicycle it is his. So if you have independent entities (a quasi-police) who take ownership of lost items, find it and do whatever they want (sell, gift or use the object found).

But again this sounds good as long as the item you have lost is something you wanted to sell-off for long and you couldn’t. What if you loose your degree certificate or something else that might be of some use to you.

So don’t be shocked. Just in the near future you might be asked to sell the mobile phone you had lost for a negative premium (less than face value). And the person who bought the lost phone from you would take the pains of finding the phone for him.

About Tim Harford

Tim Harford's is the author of the best-selling title ‘The Undercover Economist'. He writes the 'Dear Economist' column for the Financial Times, in which readers' personal problems are answered, tongue-in-cheek, with the latest economic theory.

For more on Tim Harford go

No comments: