[chrismorgan]

The obvious solution to the moral hazard is to require that the company not profit from the disposal of the lost luggage. Unfortunately this is difficult to achieve, even imperfectly. “Give the proceeds of the lot sales to charity” sounds like a straightforward solution, but who’s charity? Whoever ends up profiting now has incentive to cause more to be lost; the further they’re disconnected from the airline industry and the specific airline the better. Anonymous donation of proceeds would be best, if it can be managed.

[mcny]

It is not possible. This is the same problem I had with government fines such as traffic tickets. People can't afford to spend time away from work fighting stupid tickets So they pay to settle When the district attorney says pay and we will let you go.

What happens when government lowers it's taxes and instead gets funded with fees and fines?

I'd say airlines should not be allowed to sell any luggage. It is not theirs to sell. If they are caught selling items that don't belong to them, Put the CEO and the entire board in prison for life.