69211 - Tourism Microeconomics

Course Unit Page

SDGs

This teaching activity contributes to the achievement of the Sustainable Development Goals of the UN 2030 Agenda.

Industry, innovation and infrastructure Responsible consumption and production

Academic Year 2019/2020

Learning outcomes

Learning Outcomes: At the end of the course the student knows some advanced models of microeconomic theory and their application to tourism. Moreover, the student knows how to interpret the tourist's behaviour, the characteristics of tourism demand and supply. More specifically, the student is able to: critically evaluate recent studies of microeconomics, with particular reference to the economic problems of tourism firms and destinations, their product and pricing strategies and the organization of tourism markets; to compare theoretical results with empirical evidence; to develop autonomous ability in undertaking empirical research in tourism microeconomics.

Course contents

PART I: Analysis of Tourism Demand (Maurizio Mussoni - 30 hours)

1. Review of microeconomic theory.

  • Neoclassical (or Walrasian) general equilibrium theory.
  • Pareto efficiency and the two fundamental theorems of welfare economics.
  • Market failures, asymmetric information and uncertainty.

2. The tourism demand and the tourism markets.

  • The characteristics of the tourism good.
  • The timing in consuming a tourism good.
  • The role of information in tourists choices (incomplete and imperfect information).
  • Market failures and asymmetric information in tourism markets. Search and experience goods in the tourism market.

3. Contract theory and information theory.

  • Economic theory of contracts (implicit and explicit contracts, complete and incomplete contracts).
  • Contracts enforcement and enforcement mechanisms.
  • The Coase theorem.
  • Social efficient outcome, first best and second best contracts.
  • The contracts in tourism markets.

4. Uncertainty and tourism.

  • Consumer decisions under uncertainty.
  • Expected utility theory and attitudes towards risk.
  • Insurance and risk-sharing contracts.
  • Insurance contracts in tourism: insurance against the "economic risk" of ruined holiday.
  • Future (forward) contracts in tourism: "Free Sale" and "Allotment" Contracts.

5. Asymmetric information and uncertainty: the principal-agent model.

  • Incomplete, imperfect and asymmetric information.
  • The moral hazard problem (hidden action): incentive contracts and the trade-off between incentives and insurance. Incentive contracts in tourism.
  • The adverse selection problem (hidden information): signaling and selection mechanisms in tourism.
  • Implicit contracts and reputation mechanisms in tourism.

PART II: Industrial Organization and Market Structure in Tourism (Lorenzo Zirulia - 30 hours)

1. Monopoly

  • From linear prices to price discrimination.
  • Temporal price discrimination: first minute and last minute strategies.
  • Applications to tourism markets.

2. Competition

  • Price competition.
  • Quantity competition and capacity constraints.
  • Product differentiation.
  • Entry, exit and market structure.
  • Applications to tourism markets.

3. Policy

  • Antitrust policy.
  • Industrial policy.
  • Regulation.
  • Applications to tourism markets.

4. Business games: a simulation of the airline industry

Readings/Bibliography

PART I: Analysis of Tourism Demand (Maurizio Mussoni - 30 hours)

  • R. Cooter, R. Ulen. Law and Economics, Pearson Addison Wesley, Sixth Edition, 2011 (chapters 2 and 4).
  • G. Candela, P. Figini. The Economics of Tourism Destinations, Springer, 2012 (chapters 10 and 11).
  • M. Castellani, M. Mussoni. An Economic Analysis of Tourism Contracts: Allotment and Free Sale, in "Advances in Modern Tourism Research", Springer-Verlag, Berlin, 2007, p. 51-85 (available on the faculty member's website).

Optional

  • P. Bolton, M. Dewatripont. Contract Theory, Cambridge: MIT Press, 2005.
  • B. Salanie'. The Economics of Contracts, MIT Press, 2005.

PART II: Industrial Organization and Market Structure in Tourism (Lorenzo Zirulia - 30 hours)

  • Candela, G. and Figini, P. The Economics of Tourism Destinations, Springer, 2012.
  • Cabral, L. Introduction to Industrial Organization, The MIT Press, 2000.
  • Other specific references to tourism applications will be given in class.

Teaching methods

60 hours of lectures and a business game simulation in class.

Assessment methods

The exam is composed of two written exams.

The written exams cover Part I and Part II of the course, and aim at evaluating the skills and the critical abilities developed by the students as regards to the microeconomic theories explained during lectures, and their applications to tourism. The written exams consist in “open questions” (2 questions, to be chosen between 4 questions), and to pass the exams students must obtain a sufficient grade (18/30) for both Part I and Part II.

For students attending lectures it is possible to do the written exams through two mid-term assessments (partial exams):

- the mid-term assessment for Part I (1/2 of the final mark) is scheduled at the end of the first term of lectures, and is a 1h exam;

- the mid-term assessment for Part II (1/2 of the final mark) is scheduled at the end of the second term of lectures, and is a 1h exam.

Only students who pass the first mid-term assessment are admitted to the second mid-term assessment.

The final mark is computed as the simple average of the two marks obtained for Part I and Part II, it is out of 30 points, and the minimum mark required to pass the exam is 18 /30.

It is not possible to bring books, personal notes or electronic devices in the exam. Registration for the exam is compulsory, and students have to register through AlmaEsami [https://almaesami.unibo.it/almaesami/welcome.htm] according to the general rules of the School of Economics and Management.

Students attending the business simulation game in class during Part II will obtain an extra-point, conditional on writing a short report on it.

Only final marks will be registered on AlmaEsami [https://almaesami.unibo.it/almaesami/welcome.htm] website, while the single marks relating separately to Part I and Part II will be only published on AlmaEsami website or communicated directly to the students.

Teaching tools

Beamer; online simulation games

Office hours

See the website of Lorenzo Zirulia

See the website of Maurizio Mussoni