Exchange Rates and International Tourism Demand with Endogenous Prices and Capacity Constraints

Why does destination depreciation sometimes expand tourism and sometimes leave demand almost unchanged? We develop a two‐destination equilibrium model with endogenous supplier prices, imported‐cost exposure, currency risk, and capacity constraints. Five propositions separate price transmission, destination reallocation, additional trips, and welfare. Depreciation expands demand only when its conversion benefit exceeds the associated increase in supplier costs. A binding capacity constraint absorbs further cost relief into scarcity rents and creates unequal quantity responses to favorable and adverse shocks. Destination gains can arise entirely from reallocation when total international travel is fixed. Risk protection raises demand only when its certainty‐equivalent benefit exceeds its price. These analytical results organize a critical synthesis of tourism‐demand evidence. A documented literature verification and a paired comparison of Mauritian studies distinguish measurement differences from changes in samples and estimators. Booking‐horizon alignment remains a theoretical implication requiring direct testing. The analysis identifies the observations needed to distinguish the mechanisms behind conflicting exchange‐rate estimates.