Equilibrium dynamics and local indeterminacy in a model of sustainable tourism

The second issue is faced by Giovanni Bella in Chapter 9, ‘Equilibrium dynamics and local indeterminacy in a model of sustainable tourism’. The chapter presents a theoretical model where the representative agent faces a tourism-oriented economic scenario. In this framework, tourism is based on the use of the existing environmental resources. This leads to an inevitable trade-off as both positive effects (in terms of new output) and negative impacts (in terms of environmental degradation) are generated. The problem, then, is to choose the optimal number of tourists to be hosted in this economy, as well as the long-run level of both consumption and natural resource extraction that maximizes aggregate social welfare. An important result of this chapter is that when externalities are taken into account, indeterminacy and multiple equilibria issues arise. It is then important for the policy-maker to find a way to ‘select’ the appropriate equilibrium, possibly based on cost–benefit analysis. This chapter is complementary to that of Cerina and Giannoni (Chapter 5), where indeterminacy is ruled out. However, as in Bella’s analysis, environmental and natural resources pose important constraints on the development of a tourism sector.