Security Mechanisms for Insolvencies in the Package Travel Sector: An Economic Analysis
Journal of Consumer Policy, 36.4, pp 425-442, December 2013
32 Pages Posted: 17 Aug 2014 Last revised: 18 May 2015
Date Written: 2013
Insolvencies of companies can potentially lead to financial losses for consumers. Insolvency can obviously create quite a hassle for consumers who are disappointed since the travel they were looking for cannot take place or has to be interrupted. It may create a bad image for the entire sector as a result of which the travel sector itself has created a variety of guarantee mechanisms; moreover, in some legal systems also governments have intervened to guarantee compensation to consumers who are confronted with an insolvent travel company. The mechanisms in this respect are quite diverging. Moreover, this phenomenon of providing security in case of insolvency in the package travel sector has as yet not been analysed from an economic perspective. Nevertheless, these mechanisms pose interesting questions from an economic perspective inter alia with respect to the rationale for creating such a mechanism, but also related to the issue whether either the sector itself or government should organize a security mechanism. The goal of this paper is therefore to look at mechanisms to insure financial compensation to consumers in case of insolvencies in the package travel sector. A law and economics approach will be used to critically review these security mechanisms. In this ambit the different mechanisms opted for in the UK, the Netherlands and Sweden will be displayed and analysed.
Keywords: package travel, insolvencies, security mechanisms, comparative law, economic assessment
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