Discussion Paper

No. 2012-11 | February 08, 2012
Clashes and Compromises: Investment Policies in Tourism Destinations
(Published in Special Issue Tourism Externalities)


The authors solve a linear problem where a potential conflict between two agents (Destination manager and Firm) arises in a tourism destination. Destination manager has to choose how to allocate limited resources (capital and land) between either second homes or hotels. This conflict stems from the assumption of agents who have different linear preferences with respect to the allocation of limited resources. As a solution to this policy problem the authors consider three different policies: no intervention (laissez faire), taxation and temporary de-taxation policy. Comparing these different policies, the authors show that a compromise solution (internal solution), which results from the de-taxation policy, may be preferred by both agents over the clash of interests outcomes (corner solutions). Thus, the authors show that in a framework of ‘conflict’ between agents a compromise solution may be preferable to both the absence of public intervention and the imposition of a tax by a public policy maker who has the discretionary ‘power to regulate’ conflicts.

Paper submitted to the special issue
Tourism Externalities

JEL Classification:

D74, G11, L83, R52


  • Downloads: 1788


Cite As

Guido Candela, Massimiliano Castellani, and Maurizio Mussoni (2012). Clashes and Compromises: Investment Policies in Tourism Destinations. Economics Discussion Papers, No 2012-11, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2012-11

Comments and Questions

Marco Savioli - Stylized fact
February 10, 2012 - 08:32

Second homes, in comparison to hotels, have smaller tourism multiplier effects. However, is it true that they have same environmental negative externalities?
Destination managers could look for a right balance between hotels and second homes.

Marco Savioli - Conclusions
February 10, 2012 - 08:55

This paper is good since departs from ideal assumptions and shapes the interaction of clashing interests in presence of credit constraints. The policy implications are therefore very interesting especially in periods of economic downturn.

Anonymous - Referee Report 1
February 28, 2012 - 08:39

see attached file

Anonymous - Referee Report 2
March 09, 2012 - 12:08

see attached file

Lorenzo Zirulia - Clarifications
March 21, 2012 - 13:39

I liked the paper. I think it can be improved by clarifying some issues:

i) the authors should be specific on what they mean for Technological Transfer in the context of tourism.
ii) some numbers, if available, would make the "stylized facts" section more effective.
iii) personally, I ...[more]

... would prefer a more explicit reference to the timing dimension of the problem (expecially when discussing the de-taxation case).
iv) I am not convinced that the credit constraint is so binding for the firm. After all, building firms often receive at least part of the payment before the transaction is concluded.
v) What happens to the money collected by the Destination Manager in the taxation policy case? Why is it not used to subsidize the building of hotels (which maybe would make this analysis closer to the de-taxation case)?
vi) Why, in the de-taxation policy case, financial resources increases by the amount ny?
vii) Why the fact that the Destination Manager is also affected by the gap (S-s) is called a "common interest"? It seems to me that this element only increases the opportunity cost of not using land for the destination manager, which is already present in the basic formulation. Indeed, ax enters only equation (26), and it seems that this condition could hold (even if it less likely) also for ax=0. Am I wrong?

Pierpaolo Pattitoni - Comment
March 22, 2012 - 17:36

I enjoyed very much reading the paper. I believe that your model is effective in evaluating destination managers’ economic policies on the building firms’ investment decisions. A future extension of the model could include explicitly the effect of time in agents’ choices using a non-null intertemporal discount rate and introduce ...[more]

... uncertainty in building firms’ payoffs.

Guido Candela - Response to referees
April 16, 2012 - 09:59

see attached file

GUIDO candela - Revised Version
May 30, 2012 - 12:28

see attached file