The economic impact of uncertain tourism demand in Hawaii: risk in a computable general equilibrium model

Pratt, Stephen A. (2009) The economic impact of uncertain tourism demand in Hawaii: risk in a computable general equilibrium model. PhD thesis, University of Nottingham.

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Abstract

This thesis estimates the economic impact of uncertain tourism demand in Hawaii. It does this by incorporating risk into a Computable General Equilibrium (CGE) model. CGE models have been used to investigate a wide range of policy issues. To date, none have investigated how uncertainty regarding future tourism demand impacts on an economy.

The context in which this research is set is the US State of Hawaii. The economy of Hawaii is heavily dependent on tourism as a source of income and a generator of employment. Shocks originating outside of Hawaii have resulted in sharp decreases in visitor arrivals to Hawaii. Yet, these events and the risks associated with future possible shocks to an economy is something that needs to be factored in when planning for the future hence the need to understand what type of impacts uncertain tourism demand will have on the economy.

This thesis develops a new method for incorporating uncertainty within an applied economic model. The method involves incorporating uncertainty through different states of the world or paths that the economy may take. The risk then is that one or more of the paths may experience an external shock, which in the example used is a downturn in tourism demand. This thesis then adds to the body of knowledge methodologically.



The multi-sector forward-looking CGE model with risk shows the impact of uncertainty on the economy. The results show that, where there is an asymmetric shock, the possibility of a future tourism demand shock creates a welfare loss. The welfare gains along the non-shocked path are a result of household’s risk aversion and their substituting resources away from the shocked path. The difference in the monetary values of the welfare on the different paths can be interpreted as the ‘price’ of the risk. It is the price households would pay to remove the possibility of the tourism shock. Therefore, this research was able to quantify the monetary value of the risk. Several government policy decisions, such as the imposition of a tourism tax, are simulated to mitigate the impact of the uncertainty.

Item Type:Thesis (PhD)
Supervisors:Blake, A.
Swann, P.
Uncontrolled Keywords:Tourism demand, Hawaii, CGE, computable general equilibrium models, economic impact modelling
Faculties/Schools:UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School
ID Code:753
Deposited By:Dr Stephen Pratt
Deposited On:27 Oct 2009 10:59
Last Modified:27 Oct 2009 10:59

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