Springer Texts in Business and Economics For further volumes: http://www.springer.com/series/10099
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Guido Candela Paolo Figini l The Economics of Tourism Destinations
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 2010. Translation by Mirco Soffritti and Patric J. Walton (Chaps. 2 11) and Riccardo Leo (Chaps. 13 16). ISSN 2192-4333 ISSN 2192-4341 (electronic) ISBN 978-3-642-20873-7 ISBN 978-3-642-20874-4 (ebook) DOI 10.1007/978-3-642-20874-4 Springer Heidelberg New York Dordrecht London Library of Congress Control Number: 2012943717 # 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 (www.springer.com)
To Benedetta, my true Blessed Candle (Guido) From an Economist of Tourism to all Tourists of Economics (Paolo)
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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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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. 2 11 and Riccardo Leo for translating Chaps. 13 16 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 2010. 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
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
Contents 1 Introduction: Economics of Tourism, Economics of Destinations, Tourism Studies and Other Related Issues... 1 1.1 Introduction... 1 1.2 Was There a Need for Another Textbook?...... 2 1.3 The Organization of the Textbook... 3 1.4 On the Research and Teaching of Tourism Economics... 4 1.4.1 Genus and Species Disciplines... 5 1.4.2 What Is Tourism?... 5 1.4.3 Is Tourism Economics a Species Discipline or a Field of Study?... 8 1.4.4 The Central Role of Tourism Destinations... 12 Part I Introduction to the Economics of Tourism 2 Definitions and Key Concepts... 17 2.1 Introduction... 17 2.2 The Economics of Tourism... 18 2.3 The Use of Models in the Economics of Tourism... 22 2.4 Tourism and the Tourist... 25 2.4.1 Some Definitions of Tourism and Tourist... 25 2.4.2 The Taxonomy of Tourism... 28 2.5 The Heterogeneity and Plurality of the Tourism Product... 32 2.6 The Measurement of Tourism... 36 2.6.1 On the Tracks of the Tourist... 37 2.6.2 The Measurement of Tourism Flows..... 38 2.6.3 The Tourism Expenditure... 39 2.6.4 The Propensity to Travel... 42 xi
xii Contents 3 The Tourism Sector in the Economy... 45 3.1 Introduction... 45 3.2 The Tourism Sector... 46 3.2.1 National Accounting and the Tourism Sector... 46 3.2.2 The Supply-Side Approach... 48 3.3 The Demand-Side Approach and the Input Output Analysis... 50 3.3.1 The Table of Sectoral Interdependence... 51 3.3.2 The Input Output Model and Its Application to Tourism... 53 3.3.3 The Integration Between Two Methods of Observation for Tourism... 57 3.4 Tourism Within the National Accounting System... 60 3.4.1 Final Consumption and Tourism Items... 61 3.4.2 Fixed Capital Formation and Tourism... 61 3.4.3 Evaluating the Tourism Production...... 61 3.4.4 Tourism Balance of Trade... 62 3.4.5 Transport... 63 3.4.6 Trips Abroad... 63 3.5 The Tourism Satellite Account... 63 3.6 The Role of Tourism in Contemporary Economies... 66 4 The Economics of Tourism Destinations... 73 4.1 Introduction... 73 4.2 An Introduction to the Tourism Demand... 75 4.2.1 The Demand for Different Types of Tourism at the Destination... 76 4.2.2 The Elasticity of the Tourism Demand... 79 4.3 The Destination as the Core Element of the Tourism System... 85 4.3.1 The Coordination of Activities in the Destination... 87 4.3.2 The Variety in the Tourism Product of the Destination... 94 4.3.3 The Destination Management... 96 4.3.4 Destination Marketing... 100 4.3.5 Destination Web Management... 101 4.4 The Pricing Policy of the Destination... 103 4.4.1 Price, Overnight Stays, and Tourism Expenditure... 103 4.4.2 Price, Overnight Stays, and the Quality of Tourism... 106 4.4.3 Price, Overnight Stays, and the Two-Tier Tourism Demand... 108 4.5 The Evolution of the Destination... 114 4.5.1 The Destination Life Cycle... 114 4.5.2 Types of Tourists and the Evolution of the Destination... 121 4.5.3 Forecasting the Tourism Demand... 124
Contents xiii Part II The Microeconomics of Tourism 5 The Consumer Theory Applied to the Tourist... 133 5.1 Introduction... 133 5.2 Purchasing the Tourism Product... 136 5.2.1 The Tourism Basket... 137 5.2.2 The Aggregate Analysis of the Tourism Basket... 138 5.2.3 The Structural Analysis of the Tourism Basket... 139 5.3 The Choice of the Tourist as a Consumer... 141 5.3.1 The First Stage of the Tourist Choice.... 144 5.3.2 The Second Stage of the Tourist Choice... 145 5.3.3 The Third Stage of the Tourist Choice... 145 5.3.4 The Prices of Tourism in the Tourist Choice... 146 5.4 The Purchase of a Package Holiday... 149 5.5 The Tourist Who Self-organizes the Holiday... 151 5.5.1 Self-organization of a Holiday... 151 5.5.2 The Choice Between Self-organizing and Purchasing a Holiday... 154 5.6 The Purchase of Durable Goods... 155 5.6.1 The Purchase of Durable Goods in Tourism... 156 5.6.2 The Tourist s Investment... 157 6 A Close Examination of the Consumer Theory Applied to the Tourist... 163 6.1 Introduction... 163 6.2 The Role of Time in the Tourism Choice... 164 6.2.1 The Holiday s Length Is a Choice Variable... 165 6.2.2 The Annual Leave Is Exogenously Set... 167 6.3 The Characteristics of the Tourism Product..... 172 6.4 New Products and New Markets... 179 6.5 The Endogenous Preferences... 183 6.5.1 Multiplicity and Incompatibility... 183 6.5.2 Preferences are Simultaneously a Process and an Outcome... 184 6.5.3 Preferences that Change Preferences..... 184 6.5.4 Society, Groups, Leadership, and Persuasive Advertisement... 184 6.6 Psychological and Sociological Aspects of Tourism Consumption... 185 6.7 Information in the Tourist s Choice... 187 6.7.1 Incomplete Information in Tourism...... 188 6.7.2 The Price Search... 189 6.7.3 The Quality Search... 198 6.7.4 The Informational Cascade... 202
xiv Contents 7 Production in Tourism... 207 7.1 Introduction... 207 7.2 The Taxonomy of Tourism Production... 208 7.3 Market Relationships Versus the Organization of Firms... 210 7.4 Production and Sale of the Holiday... 216 7.5 Seasonality in Tourism... 218 7.5.1 The Identification of Seasonality... 219 7.5.2 The Profiles, the Indices, and the Causes of Seasonality... 220 7.5.3 The Effects of Seasonality... 229 7.5.4 The Tourism Policies for Smoothing the Seasonality... 236 7.6 Tourism and Technology... 238 8 The Production and the Sale of Holidays: Tour Operators and Travel Agencies... 243 8.1 Introduction... 243 8.2 The Tour Operator... 245 8.2.1 Functions and Activities of the Tour Operator... 246 8.2.2 The Organization of the Tour Operator and Its Operational Process... 249 8.2.3 The Cost Structure and the Price of the Package Tour... 251 8.2.4 The Tour Operator s Pricing Strategy.... 257 8.3 The Travel Agency... 260 8.3.1 Functions and Activities of the Travel Agency... 261 8.3.2 The Profitability of the Travel Agency... 263 8.3.3 Online Travel Agencies and Web Tourists... 266 9 The Supply of Tourism Services: Hospitality, Transport, Attractions... 269 9.1 Introduction... 269 9.2 The Hospitality Sector... 270 9.2.1 The Hospitality Sector and the Tourism System... 270 9.2.2 Costs and Prices of Hospitality Firms.... 273 9.2.3 The Hotels Management Barometers.... 278 9.3 The Transport Sector... 282 9.3.1 Transport and Tourism... 282 9.3.2 The Price of Transport... 290 9.4 The Tourism Attractions... 292 9.4.1 The Classification of Attractions... 292 9.4.2 Prices and Costs in Tourism Attractions... 294 9.5 The Yield Management... 296 9.5.1 The Price Discrimination... 299 9.5.2 The Booking Management... 303 9.5.3 The Overbooking... 305 9.5.4 The Dynamic Pricing... 306
Contents xv 10 The Tourism Markets... 311 10.1 Introduction... 311 10.2 The Structure of Tourism Markets... 313 10.2.1 Perfect Competition... 313 10.2.2 Monopoly... 317 10.2.3 Monopolistic Competition... 317 10.2.4 Oligopoly... 318 10.2.5 Strategies of Integration Between Firms... 319 10.3 The Differentiation of the Tourism Product... 321 10.3.1 The Quality in the Tourism Product... 323 10.3.2 Tourism as a Good with Exogenous Quality... 327 10.3.3 The Variety in the Tourism Product... 330 10.4 The Information Asymmetry in the Tourism Market... 334 10.4.1 Adverse Selection and the Decline of the Destination... 335 10.4.2 Tourism Markets with Signaling... 337 10.4.3 The Reputation in Tourism Markets... 339 10.5 Search and Experience Goods in the Tourism Market... 344 10.5.1 The Product s Quality in Models of Search and Experience Goods... 344 10.5.2 The Price in Search Models... 346 10.6 The Role of Advertising in Tourism... 347 10.6.1 The Advertisement in the Market for Search Goods... 348 10.6.2 The Advertisement in the Market for Experience Goods... 350 10.6.3 Advertisement, Reputation, Word of Mouth... 352 11 The Contracts in the Tourism Markets... 355 11.1 Introduction... 355 11.2 An Introduction to the Economic Theory of Contracts... 358 11.2.1 The Economic Theory of Complete Contracts... 358 11.2.2 The Economic Theory of Incomplete Contracts... 358 11.3 The Insurance Contract in Tourism... 361 11.3.1 Choice Under Uncertainty... 361 11.3.2 Contingent Contracts: Insurance in the Context of Tourism... 363 11.4 The Contracts Regulating the Transactions Between Tourism Firms... 367 11.4.1 The Forward Contract: The Free Sale Contract... 368 11.4.2 Forward Contracts with Option: The Allotment... 371 11.5 The Contracts Between Tour Operators, Travel Agencies, and Service Providers... 372 11.5.1 Contracts to Deal with the Double Markup: The Minimum Quota and the Price Ceiling... 372 11.5.2 The Exclusive Contracts... 375 11.5.3 The Full-Line Contract... 378 11.5.4 Selection Contracts with Hospitality Firms... 379
xvi Contents 11.5.5 The Product Club... 381 11.6 Information Asymmetry in Incomplete Contracts: The Incentive Contracts... 385 11.6.1 The Principal Agent Model... 388 11.6.2 From the Contract to the Organization... 392 11.7 The Contracts with the Tourism Destination... 393 11.7.1 Specific Investments and Long-Term Contracts... 393 11.7.2 The Contract for Joint Investments.... 395 12 The Information and Communication Technology and the Tourism Sector... 399 12.1 Introduction... 399 12.2 The Economic Impact of Internet... 400 12.2.1 Information and Communication Technology, New Strategies, and Market Effects.... 402 12.2.2 A Brief Outline of the Economic Theory of Information... 407 12.3 The Impact of Internet on the Tourism Sector... 411 12.3.1 Information and Communication Technology and the Tourist... 412 12.3.2 Information and Communication Technology and the Tourism Firm... 416 12.3.3 The GDS, the OLTA, and the Disintermediation... 418 12.3.4 Information and Communication Technology and the Tourism Destination... 421 Part III The Macroeconomics of Tourism 13 Tourism, Development, and Growth... 427 13.1 Introduction... 427 13.2 The Tourism Expenditure Multiplier... 428 13.2.1 The Tourism Multiplier: Aggregate Analysis... 428 13.2.2 The Model of the Tourism Multiplier... 431 13.2.3 The Model of the Tourism Super-multiplier... 435 13.2.4 The Tourism Expenditure Multiplier: Disaggregated Analysis... 437 13.3 Tourism and Regional Development... 440 13.3.1 The Phases of Tourism Development in a Regional Economy... 441 13.3.2 Tourism in Growth Models... 444 13.3.3 Adding Tourism to Growth Models.... 448 13.4 The Crowding-Out Effect of Tourism... 451 13.4.1 The Optimal Use of Scarce Resources When There Is Crowding-Out Effect... 452
Contents xvii 13.5 Tourism Specialization in an Endogenous Growth Model... 454 13.5.1 The Endogenous Growth Rate of a Tourism Destination... 455 13.6 Local Development and Tourism Districts.... 463 14 International Tourism: Real and Monetary Flows... 467 14.1 Introduction... 467 14.2 Domestic and International Markets... 468 14.2.1 International Tourism Operators... 469 14.2.2 The Role of Multinational Companies in Tourism... 474 14.2.3 Globalization and Tourism... 478 14.3 The Real Aspects of International Tourism.... 483 14.3.1 Commodities and Tourists in the Balance of Payments... 483 14.3.2 The Determinants of International Tourism... 485 14.3.3 The Center Periphery Model Applied to Tourism... 494 14.4 The Monetary Aspects of International Tourism... 498 14.4.1 The Use of Currency and Financial Markets in Tourism... 498 14.4.2 Tourism Operators and the Currency Market... 503 14.4.3 The Currency Exchange for Tourism Firms... 504 14.4.4 The Currency Exchange for Tourists... 506 14.4.5 The Exchange Rate and the Competitiveness of Destinations... 507 14.4.6 The Arbitrage Operations by Tourists... 508 15 The State Intervention and the Public Organization of Tourism... 511 15.1 Introduction... 511 15.2 Public Goods and Public Bads in the Tourism Product... 513 15.2.1 Public Goods in the Tourism Product... 514 15.2.2 Public Goods as Factors of Production... 519 15.2.3 Public Bads in the Tourism Product... 521 15.3 The Externalities in the Tourism Product...... 523 15.3.1 Negative Externalities on Tourism Production... 524 15.3.2 The Externalities Between Tourists and Residents... 530 15.4 The Taxation of Tourism... 534 15.4.1 The Public Intervention... 535 15.4.2 Taxes on Tourists... 536 15.4.3 The Two-Part Tariff... 539 15.5 National and International Tourism Organizations... 540 15.5.1 National Public Organizations... 540 15.5.2 International Organizations... 542 15.5.3 Non-profit and Voluntary Organizations in Tourism... 545
xviii Contents 16 Sustainable Tourism... 549 16.1 Introduction... 549 16.2 The Evolution of the Relationship Between Tourism and the Environment... 552 16.2.1 The Early Visions: The 1950s and the 1960s... 553 16.2.2 The Beginning of the Debate: The 1970s... 553 16.2.3 The Core of the Debate: The Early 1980s... 554 16.2.4 From Idealism to Realism: The Late 1980s... 554 16.2.5 The Idea of Sustainability in the 1990s... 554 16.2.6 At the Beginning of the Twenty-First Century... 555 16.3 Sustainable Tourism... 557 16.3.1 Environmental Sustainability and the Tourism Exploitation of Natural Resources..... 558 16.3.2 Social Sustainability... 566 16.3.3 The Different Aspects of Responsible Tourism... 568 16.4 The Carrying Capacity... 572 16.4.1 The Environmental Carrying Capacity... 573 16.4.2 The Social Carrying Capacity... 577 16.5 Methods of Environmental Monitoring... 581 16.5.1 The Environmental Impact Assessment... 581 16.5.2 The Environmental Audit... 583 References... 587 Index... 607