Environmental effects of tourism industry investments: An inter-temporal trade-off

Efficient investment programmes in touristic infrastructure have to take into consideration that any kind of tourism reduces the environmental quality. Since pollution shows negative repercussions as concerns the attractiveness of a touristic region, tourism planners have to determine a trade-off between adequate services for tourists and a clean environment. To deal with this problem in a dynamic context, a three-state optimal control model is formulated. It turns out that, even if pollution reduction is not a goal in itself, the profit-maximizing tourism industry should care for ecological conservation. The paper further shows that persistent periodic investment policies are optimal for realistic parameter sets, and provides an economic intuition for such behaviour. From an economic point of view, this result implies that expansionary periods with high investment are followed by periods of stagnation with low investment.