Overtourism and negative externalities

Tourism is becoming ever more affordable with low-cost air travel, Airbnb, cheap packages etc but there are concerns that tourist destinations are feeling the pressure of rising visitor numbers. Overcrowding can dampen the experience of sightseeing for people in long queues, unable to visit museums, galleries and sites without advance booking, incurring escalating costs for basics like food, drink and hotels, and faced with the inability to experience the wonder of a place in relative solitude. This leads to negative externalities of consumption as there are external costs to a third party associated with tourist numbers. Without considering the spillover effect on the tourist destination, consumption by one individual is where MC=MB, at Qm and Pm – see graph below. Tourism is underpriced and over consumed and so represents market failure.

Tourists do not consider or pay the full cost of their impact on tourist destination, resulting in a misallocation of resources. This deadweight loss at the private equilibrium is shown by the shaded area ABC. The private marginal benefit curve (MB) is above the social marginal benefit curve (MSB) because the private margin benefits reflects that tourist do not consider the spillover costs to society from visiting destinations.

Source: Elearneconomics

From the tourist destination’s point of view, consumption should be at a lower quantity and greater price. This requires a tax on each tourist to bring consumption to the point where MSC = MSB, at Qs and Ps. The total tax paid is represented by the area EDCF. A tax on tourists would be deemed fair as it makes the tourists that are causing the negative spillover pay for the externality and achieve what the local tourist destination desires.

Satellite data from French company Murmuration, indicated that 80% of travellers visit just 10% of the world’s tourism destinations. By 2030 it is predicted that the number of tourists will reach 1.8 billion (1.5 billion in 2019) leading to greater pressure on already popular holiday spots.

Who has been protesting?

• Hallstatt – UNESCO-listed village in Austria – protests by locals for cap on daily visitors

• Venice – Italy – ban on cruise ships over 25,000 tonnes. Introduced a charge for day-trippers of €5

• Marseille – limits of four coaches per ship morning and afternoon at the Basilica

• Orkney Islands – 253 ships scheduled for the year – limits on size/number to be introduced.

• Barcelona – increased its nightly levy

• Amsterdam – ban on cruise ships

• Rome – popular sites have been restricted

Solutions

• Tourism degrowth – simple policy but the economic trade-off of fewer tourists is conflicting

• Focus on quality tourism rather than quantity – Lanzarote have moved to desaturate the island

• Dispersing tourists outside hotspots – could result in problem shifting

• Demarketing – problem is that social media focuses on tourist hotspots.

• Entry fees – get act as a deterrent but depends on price elasticity of demand. Also what happens to the money taken?

• Awareness campaigns – appeals to tourists to act more responsibly.

• Solutions need to be tailored to the destination – Venice for example.

Below is a video/podcast from the BBC – How to be a responsible tourist.

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