Tourism, Security and Safety From Theory to Practice

Figure 2
Hotel occupancy rates in Israel, 1987–1999.
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QL
t
d
= QL
t
d
(PL
t
, GNPL
t
, SCL
t
, 
S
)
(1)
QF
t
d
= QF
t
d
(PF
t
, GNPF
1
, SCF
t
, TER
1-k
, 
S
)
(2)
Prices to local tourists generally differ from those to foreigners, partly because
many international visits are reserved 6 to 9 months ahead of time, while Israelis tend
to reserve lodging much closer to the arrival date. Alternative or substitute costs are,
in the foreign market, mean costs of foreigners’ travel to destinations other than to
Israel and, in the local market, mean costs of Israeli travel to destinations abroad.
Characterizing the supply side of the market requires distinguishing between
long-run and short-run supply and between the supply of rooms to foreigners and
the supply to Israelis. Because years are required to plan and construct an interna-
tional-class hotel, capital stock can be altered only slowly in the lodging industry.
In a given month, we accordingly assume hotels have a fixed total bed night stock.
Capacity is not fixed, however, in the foreign or local market taken individually,
since hotels have flexibility in allocating rooms across the two markets. In partic-
ular, because foreign visitors’ early bookings permit hotels to plan ahead and hence
reduce cost, managers book as many rooms as possible to international tourists,
allocating the remainder to the local market. The short-run supply of bed nights in
the local market is, then, a function of demand in the foreign market.
To reflect such stylized facts, it is useful to write the supply functions in price-
dependent form. We further define the following variables:
E
t
Number of empty (available but unsold) bed nights
QT
1
Total number of available bed nights (QT
1
= QL
t
+
QF
1
+
E
1
)
W
1
Weighted average wages at Israeli hotels, in US dollars per month
Hoteliers’ minimum (supply) prices PF
t
s
to foreign visitors should depend on the
endogenous quantity of bed nights sold to them (QF
t
), on current hotel industry
costs such as wage rates W
t
, and on any price-change sluggishness, represented
here by lagged prices PF
t
-1
. Supply prices PL
t
s
offered to Israeli visitors should
depend similarly on the endogenous quantity of bed nights sold to Israelis (QL
t
),
on industry wage rates W
t
, and on lagged prices PL
t
-1
. Because allocations to the
local market usually are made only after most foreign demand is known, foreign
bed nights QF
t
are a further factor in the Israeli supply function. Declining sales
QF
t
to the foreign market should shift the bed supply to Israelis downward, reduc-
ing the minimum prices that hotels accept from Israeli visitors.
Finally, since Israeli hotels have excess capacity during much of the year (E
t
> 0),
total bed supply QF
t
is independent of total demand QF
t
+
QL and may also, there-
fore, affect the supply price to Israeli tourists. In a long-run decreasing (increas-
ing) cost industry, rising total bed supply should put downward (upward) pressure
on prices, and only if the industry is a constant-cost one will total bed supply have
no price effect.
With these considerations in mind, we specify the supply functions as
PL
t
s
= PL
t
(QL
t
, QF
t
, QT
t
, W
t
, PL
t
-1
)
(3)
PF
t
s
= PF
1
(QF
t
, W
t
, PF
t
-1
)
(4)
in which, as in demand specifications (1) and (2), the endogenous variables are
QL, QF, PL, and PF.
War, Terror, and the Tourism Market in Israel
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