Optimal periodic development of a pollution generating tourism industry

This paper studies how environmental pollution affects optimal development of the tourism industry over time. The planner has the possibility to stimulate tourism by carrying out service expenditures, like organizing events, advertising, attracting seasonal workers, etc. The positive effect of these expenditures on tourism is negatively influenced by the presence of pollution, since the latter element distracts tourists from visiting a particular region. We show that for a particular scenario service expenditures, tourism as well as pollution exhibit a cyclical development over time. This policy implies that when pollution is high, tourism activities are reduced in order to give the environment a chance to recover. Environmentalists advocate this behavior, but in this paper, we show that this policy is also optimal from a profit maximizing point of view.