Investment on Environmental Quality of a Tourist Region : An Economic Model with Vertical Differentiation and Externalities

In this paper we present an economic model to analyze the impact produced by changes of tourist's income on the demand for tourist services and on the investments of hotels on environmental quality. The ingredients of the model are an oligopoly tourist market with a vertical product differentiation and a continuum of consumers characterized by their location. We show that the level of environmental quality selected by the hotels depends on the income level of the tourists and that the demand for hotel services depends positively on the level of their own investments to preserve the natural characteristics of the tourist region where they are located