Springer Texts in Business and Economics

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1 Springer Texts in Business and Economics For further volumes:

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3 Guido Candela Paolo Figini l The Economics of Tourism Destinations

4 Guido Candela Paolo Figini Department of Economics University of Bologna Bologna Italy Translated and revised from the book Economia del Turismo e delle Destinazioni, published by McGraw-Hill Companies Inc. Publishing Italia, 2nd edition Translation by Mirco Soffritti and Patric J. Walton (Chaps. 2 11) and Riccardo Leo (Chaps ). ISSN ISSN (electronic) ISBN ISBN (ebook) DOI / Springer Heidelberg New York Dordrecht London Library of Congress Control Number: # Springer-Verlag Berlin Heidelberg 2012 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher s location, in its current version, and permission for use must always be obtained from Springer. Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations are liable to prosecution under the respective Copyright Law. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Springer is part of Springer Science+Business Media (

5 To Benedetta, my true Blessed Candle (Guido) From an Economist of Tourism to all Tourists of Economics (Paolo)

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7 Preface to the English Edition This book was originally thought of as the translation of Economia del Turismo e delle Destinazioni (Candela and Figini 2010a), a well-known Italian textbook of Tourism Economics, into English. The book originates from the long experience of the authors (given the age, particularly one of the two authors!) in teaching and investigating tourism-related issues at the Rimini Campus of the University of Bologna, one of the main centers in Italy for the study of Tourism Economics. Candela published his first textbook on Tourism Economics in 1996 (Candela 1996, but also see Candela 1988). Candela and Figini published their first book together in 2003 (Candela and Figini 2003). However, the project was completely changed since its conception two years ago and, from what should have been a mere translation of the Italian version, the book was completely revisited and updated. Although its structure was not changed, the book needed to adapt to the different styles used in English, to adapt to the different and heterogeneous background of the international audience, and last but not least, to correct some mistakes that were found and some explanations that were not satisfying. To sum up, the book was basically rewritten. Although the exerted effort was considerable, errors and mistakes certainly remain, for which the authors are the sole responsible. Bologna, Italy Guido Candela Paolo Figini vii

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9 Acknowledgements An academic text, whatever teaching or research oriented, is always the outcome of a collaborative effort of socialization of knowledge, whereby scholars, researchers, students, and professionals play a key, although often unaware, role. Apart from all the students and colleagues whom we have met in our professional life, we want to explicitly thank those who actively gave a contribution to the preparation of this textbook. Mirco Soffritti and Patric J. Walton for translating Chaps and Riccardo Leo for translating Chaps of the Italian version of the textbook and that have been used as the base on which this textbook was written. The work of the translator is a tricky one, particularly when the academic style used in Italian and English textbooks are so different. Isabel Cortès-Jiménez for carefully reading and working on the first three chapters of the book, for which she might almost be considered a co-author. The editor of Springer, Barbara Fess, for the encouragement and for the patience while she was waiting for the final version of the book. Although we sign the book with the date of January 2012, the readers might want to know that originally the book was expected to be delivered by the end of A special thanks goes to Marion Kreisel, the editorial assistant, and Sylvia Schneider, the production editor, who took care of the book in the publishing process. Some colleagues helped us in setting the Italian edition, in particular: Rainer Andergassen, Patrizia Battilani, Massimiliano Castellani, Roberto Cellini, Roberto Dieci, Simone Giannerini, Maurizio Mussoni, Marco Savioli, Antonello E. Scorcu, Matteo Troilo, and Laura Vici. An infinite thanks to Barbara Ravagli who helped us in the equation editing and for a careful checking of mistakes, errors, or incongruities. We know that many typos and mistakes will be found in this book but much less of what would have been without her precious work. Moreover, she gave us the assurance that, by working with her, what you start, you will bring it to the end. ix

10 x Acknowledgements Finally, thanks to all who will read the book, particularly to those who will provide us with their feedback, comments, or suggestions. There are always possibilities to improve. Bologna, Italy January 2012 Guido Candela Paolo Figini

11 Contents 1 Introduction: Economics of Tourism, Economics of Destinations, Tourism Studies and Other Related Issues Introduction Was There a Need for Another Textbook? The Organization of the Textbook On the Research and Teaching of Tourism Economics Genus and Species Disciplines What Is Tourism? Is Tourism Economics a Species Discipline or a Field of Study? The Central Role of Tourism Destinations Part I Introduction to the Economics of Tourism 2 Definitions and Key Concepts Introduction The Economics of Tourism The Use of Models in the Economics of Tourism Tourism and the Tourist Some Definitions of Tourism and Tourist The Taxonomy of Tourism The Heterogeneity and Plurality of the Tourism Product The Measurement of Tourism On the Tracks of the Tourist The Measurement of Tourism Flows The Tourism Expenditure The Propensity to Travel xi

12 xii Contents 3 The Tourism Sector in the Economy Introduction The Tourism Sector National Accounting and the Tourism Sector The Supply-Side Approach The Demand-Side Approach and the Input Output Analysis The Table of Sectoral Interdependence The Input Output Model and Its Application to Tourism The Integration Between Two Methods of Observation for Tourism Tourism Within the National Accounting System Final Consumption and Tourism Items Fixed Capital Formation and Tourism Evaluating the Tourism Production Tourism Balance of Trade Transport Trips Abroad The Tourism Satellite Account The Role of Tourism in Contemporary Economies The Economics of Tourism Destinations Introduction An Introduction to the Tourism Demand The Demand for Different Types of Tourism at the Destination The Elasticity of the Tourism Demand The Destination as the Core Element of the Tourism System The Coordination of Activities in the Destination The Variety in the Tourism Product of the Destination The Destination Management Destination Marketing Destination Web Management The Pricing Policy of the Destination Price, Overnight Stays, and Tourism Expenditure Price, Overnight Stays, and the Quality of Tourism Price, Overnight Stays, and the Two-Tier Tourism Demand The Evolution of the Destination The Destination Life Cycle Types of Tourists and the Evolution of the Destination Forecasting the Tourism Demand

13 Contents xiii Part II The Microeconomics of Tourism 5 The Consumer Theory Applied to the Tourist Introduction Purchasing the Tourism Product The Tourism Basket The Aggregate Analysis of the Tourism Basket The Structural Analysis of the Tourism Basket The Choice of the Tourist as a Consumer The First Stage of the Tourist Choice The Second Stage of the Tourist Choice The Third Stage of the Tourist Choice The Prices of Tourism in the Tourist Choice The Purchase of a Package Holiday The Tourist Who Self-organizes the Holiday Self-organization of a Holiday The Choice Between Self-organizing and Purchasing a Holiday The Purchase of Durable Goods The Purchase of Durable Goods in Tourism The Tourist s Investment A Close Examination of the Consumer Theory Applied to the Tourist Introduction The Role of Time in the Tourism Choice The Holiday s Length Is a Choice Variable The Annual Leave Is Exogenously Set The Characteristics of the Tourism Product New Products and New Markets The Endogenous Preferences Multiplicity and Incompatibility Preferences are Simultaneously a Process and an Outcome Preferences that Change Preferences Society, Groups, Leadership, and Persuasive Advertisement Psychological and Sociological Aspects of Tourism Consumption Information in the Tourist s Choice Incomplete Information in Tourism The Price Search The Quality Search The Informational Cascade

14 xiv Contents 7 Production in Tourism Introduction The Taxonomy of Tourism Production Market Relationships Versus the Organization of Firms Production and Sale of the Holiday Seasonality in Tourism The Identification of Seasonality The Profiles, the Indices, and the Causes of Seasonality The Effects of Seasonality The Tourism Policies for Smoothing the Seasonality Tourism and Technology The Production and the Sale of Holidays: Tour Operators and Travel Agencies Introduction The Tour Operator Functions and Activities of the Tour Operator The Organization of the Tour Operator and Its Operational Process The Cost Structure and the Price of the Package Tour The Tour Operator s Pricing Strategy The Travel Agency Functions and Activities of the Travel Agency The Profitability of the Travel Agency Online Travel Agencies and Web Tourists The Supply of Tourism Services: Hospitality, Transport, Attractions Introduction The Hospitality Sector The Hospitality Sector and the Tourism System Costs and Prices of Hospitality Firms The Hotels Management Barometers The Transport Sector Transport and Tourism The Price of Transport The Tourism Attractions The Classification of Attractions Prices and Costs in Tourism Attractions The Yield Management The Price Discrimination The Booking Management The Overbooking The Dynamic Pricing

15 Contents xv 10 The Tourism Markets Introduction The Structure of Tourism Markets Perfect Competition Monopoly Monopolistic Competition Oligopoly Strategies of Integration Between Firms The Differentiation of the Tourism Product The Quality in the Tourism Product Tourism as a Good with Exogenous Quality The Variety in the Tourism Product The Information Asymmetry in the Tourism Market Adverse Selection and the Decline of the Destination Tourism Markets with Signaling The Reputation in Tourism Markets Search and Experience Goods in the Tourism Market The Product s Quality in Models of Search and Experience Goods The Price in Search Models The Role of Advertising in Tourism The Advertisement in the Market for Search Goods The Advertisement in the Market for Experience Goods Advertisement, Reputation, Word of Mouth The Contracts in the Tourism Markets Introduction An Introduction to the Economic Theory of Contracts The Economic Theory of Complete Contracts The Economic Theory of Incomplete Contracts The Insurance Contract in Tourism Choice Under Uncertainty Contingent Contracts: Insurance in the Context of Tourism The Contracts Regulating the Transactions Between Tourism Firms The Forward Contract: The Free Sale Contract Forward Contracts with Option: The Allotment The Contracts Between Tour Operators, Travel Agencies, and Service Providers Contracts to Deal with the Double Markup: The Minimum Quota and the Price Ceiling The Exclusive Contracts The Full-Line Contract Selection Contracts with Hospitality Firms

16 xvi Contents The Product Club Information Asymmetry in Incomplete Contracts: The Incentive Contracts The Principal Agent Model From the Contract to the Organization The Contracts with the Tourism Destination Specific Investments and Long-Term Contracts The Contract for Joint Investments The Information and Communication Technology and the Tourism Sector Introduction The Economic Impact of Internet Information and Communication Technology, New Strategies, and Market Effects A Brief Outline of the Economic Theory of Information The Impact of Internet on the Tourism Sector Information and Communication Technology and the Tourist Information and Communication Technology and the Tourism Firm The GDS, the OLTA, and the Disintermediation Information and Communication Technology and the Tourism Destination Part III The Macroeconomics of Tourism 13 Tourism, Development, and Growth Introduction The Tourism Expenditure Multiplier The Tourism Multiplier: Aggregate Analysis The Model of the Tourism Multiplier The Model of the Tourism Super-multiplier The Tourism Expenditure Multiplier: Disaggregated Analysis Tourism and Regional Development The Phases of Tourism Development in a Regional Economy Tourism in Growth Models Adding Tourism to Growth Models The Crowding-Out Effect of Tourism The Optimal Use of Scarce Resources When There Is Crowding-Out Effect

17 Contents xvii 13.5 Tourism Specialization in an Endogenous Growth Model The Endogenous Growth Rate of a Tourism Destination Local Development and Tourism Districts International Tourism: Real and Monetary Flows Introduction Domestic and International Markets International Tourism Operators The Role of Multinational Companies in Tourism Globalization and Tourism The Real Aspects of International Tourism Commodities and Tourists in the Balance of Payments The Determinants of International Tourism The Center Periphery Model Applied to Tourism The Monetary Aspects of International Tourism The Use of Currency and Financial Markets in Tourism Tourism Operators and the Currency Market The Currency Exchange for Tourism Firms The Currency Exchange for Tourists The Exchange Rate and the Competitiveness of Destinations The Arbitrage Operations by Tourists The State Intervention and the Public Organization of Tourism Introduction Public Goods and Public Bads in the Tourism Product Public Goods in the Tourism Product Public Goods as Factors of Production Public Bads in the Tourism Product The Externalities in the Tourism Product Negative Externalities on Tourism Production The Externalities Between Tourists and Residents The Taxation of Tourism The Public Intervention Taxes on Tourists The Two-Part Tariff National and International Tourism Organizations National Public Organizations International Organizations Non-profit and Voluntary Organizations in Tourism

18 xviii Contents 16 Sustainable Tourism Introduction The Evolution of the Relationship Between Tourism and the Environment The Early Visions: The 1950s and the 1960s The Beginning of the Debate: The 1970s The Core of the Debate: The Early 1980s From Idealism to Realism: The Late 1980s The Idea of Sustainability in the 1990s At the Beginning of the Twenty-First Century Sustainable Tourism Environmental Sustainability and the Tourism Exploitation of Natural Resources Social Sustainability The Different Aspects of Responsible Tourism The Carrying Capacity The Environmental Carrying Capacity The Social Carrying Capacity Methods of Environmental Monitoring The Environmental Impact Assessment The Environmental Audit References Index