I heard this story on NPR yesterday.

At some point, you likely received a present from a prepaid gift card from the person who wasn’t exactly sure what you’d want. Residents of New Jersey may not be able to buy them for much longer. American Express has pulled its gift cards from the state, and other big industry players are threatening to do the same. They oppose a new law that would allow New Jersey to claim unused gift card balances after two years. NPR’s Joel Rose reports.

As you may know, huge sums of money are loaded onto gift cards that are never redeemed.  The gift card “industry” leverages a wedge between your overly optimistic belief that you will not lose your gift card and the vendor’s knowledge that with quite high probability you will.  Is it welfare improving to prevent the vendor from profiting from this wedge?  Whatever welfare theory you are basing your conclusion on, it is not revealed preference, so what is it?  (Never mind that it’s the greedy government essentially trying to capture the same wedge.  Let’s assume for the sake of argument the unspent balance was automatically remitted to the purchaser of the card.)

Why doesn’t market competition already erode these profits?  (“Try our gift cards instead.  You will get any unpaid balance back, indeed with interest.”)

Related question.  Peet’s coffee has shrunk the size of their gift cards so that they are even easier to lose.  They do give you the choice whether you want a large gift card or a small one.  Are they being nice?

Advertisements