Network Externalities, Tourism Pollution and Tourism Policy

This study employs a two-stage game-theoretic framework to examine the effects of tourism policy on firm profits, consumer welfare, environmental degradation, and social welfare, by incorporating network externalities and pollution characteristics specific to the tourism industry. The analysis yields several key findings. When network externalities in the tourism sector are relatively weak, the government should impose a tourism tax to mitigate environmental harm. However, such a tax policy negatively affects firm profitability and consumer welfare. Conversely, when network externalities are strong, the government should provide tourism subsidies to enhance firm profits and consumer welfare, although such subsidies tend to exacerbate environmental pollution. Regardless of whether the policy involves taxation or subsidies, government intervention in the tourism market improves overall social welfare.