The Valuation of Individual Opportunity Cost of Social Welfare : Use of Vacation Homes

This paper studies the impact of a correct valuation of the opportunity costs in individual decisions and social welfare applied to a tourism problem. Starting from the partial equilibrium model in Skak (2004), we show that the valuation of social welfare depends on the definition of individual opportunity costs. In particular we show that if the labor income is introduced in the valuation of the opportunity cost of the owners, then a free market of vacation homes is the best mechanism to obtain the maximum social welfare. We conclude that the best public policy is to eliminate all restrictions to the vacation homes markets