Economic welfare, the environment and the tourist product life cycle

Abstract

The tourist product life cycle model predicts different stages of the evolution of the industry in a particular region, focusing on the number of tourists visiting over a period of time. In this paper, we consider the role of environmental degradation and the decline in natural capital as determinants of the tourist product life cycle and the implications for economic welfare. It is shown that the optimal trajectory of tourist consumption increases when the stock of natural capital is high and environmental attributes are preserved, and tend to decline when the tourist product has reached a low level of natural capital, which is defined as the stock of natural resources giving value to the tourist product. The main implication is that the evolution of demand as represented by the number of tourists does not need to match economic welfare. In addition, the evolution of the tourist product life cycle converges to a stationary solution characterized by positive levels of tourist consumption and natural capital. The results have implications for the optimal management of the number of tourists and the environmental attributes of tourist destinations. Optimal taxation can play a role in financing the maintenance of the optimal level of natural capital in the stationary state.