Second Homes vs. Hotels: A Suggestion for a Self-enforcing Policy

We set up a theoretical model, in which the policy maker of a tourism destination has to choose how to allocate the limited natural resource - land - between private holiday accommodations (i.e. second homes) or hotels. In a framework of partial equilibrium, the policy maker minimizes a loss function which measures the loss of political consensus and is defined by a linear combination of the policy maker and the local community preferences. We can obtain both a corner solution, in which we have extreme choices of only holiday houses or only hotels, and an internal solution, in which we have a linear combination of them. To do that the policy maker can use as economic policy instruments either standard policies (indirect control - a Pigou tax - or direct control - regulation) or non-standard policies (a reinvestment commitment of the firm in the tourism destination). The final policy maker decision was made by assessing the welfare consequences of the policy implications.