Efficient pricing of tourist sites

Abstract

Foreign tourism has expanded very fast in Iceland in recent years. Much of this tourism targets relatively few places of particular natural beauty. This has resulted in two notable external effects; deterioration of some of the natural features of these sites and significant crowding in the more popular ones. These manifestations of scarcity suggest the social desirability of limiting access to these sites. Basic economic theory holds that optimal use of scarce resources may be accomplished by means of prices. On that basis this paper considers prices for access to natural tourist sites. Optimal pricing rules are derived, their content explained and their practical applicability considered. Comparison of these optimal pricing rules to those that might be set by individual owners is briefly examined. While motivated by the Icelandic problem, the findings of the paper have general applicability.