Helping to sustain a viable rural sector, rural tourism enjoys public support in many countries. We claim that due to congestion and agglomeration externalities in the rural accommodation market, public support should be integrated into a broader local development policy that regulates the number of accommodation units in one locality. To demonstrate this, we extended an equilibrium model that accounts for product differentiation and oligopolistic competition to address congestion and agglomeration effects, and applied it to data collected in northern Israel. We show that, under the prevailing policy measures, the number of accommodation units can exceed the optimal one, leading to loss of welfare.
Bibliographical noteFunding Information:
The work leading to this paper was funded by the Israeli Ministry of Agriculture and Rural Development Chief-Scientist fund and by The Center for Agricultural Economics Research. The paper won the Stan Czamanski prize for outstanding scholarship by a young scholar from the Israeli section of the Regional Science Association International.
- optimal size
- rural tourism