Investment Horizons and Sustainable Tourism: Implications for Eu Policy

The natural and cultural environment is accepted as a key input to the supply of tourism products, although at the same time the potential adverse effect of tourism activity on the environment is also widely recognized. EU strategy on sustainable tourism involves action to intervene directly in those areas most at risk from tourism activity by controlling the type of tourism, the behaviour of tourists and also the quality of services. A key market failure leading to unsustainability in tourism activity, which has not been addressed in the existing strategy, is identified here. Risk aversion and imperfect information, prevalent in the tourism sector, lead to an emphasis on the achievement of short-term objectives which are likely to be to the detriment of the long-term vitality of tourism markets. Although there may be a range of factors inducing myopic behaviour in tourism markets, the potential role of capital markets in determining the planning horizons of tourism businesses is emphasized here. The implications of this short-termism, or myopia, are discussed in the context of the tourism area life-cycle model and this highlights the need for action to promote longer term planning, in conjunction with the incorporation of environmental and social impacts, in decision-making. Furthermore, it is suggested that the issue of short termism is likely to be the most significant factor in determining whether the market mechanism can effectively promote sustainability in tourism. In tourism markets a business policy of long-term profit maximization may well be consistent with sustainability. The recommendations indicate that policies designed to promote sustainable tourism should not only address the effects of myopia in tourism markets, such as physical damage to the environment, but, to operate effectively, should consider the sources of such short-term behaviour, namely, risk aversion and imperfect information.