Selling package tours to tourists: a contract theory perspective

Abstract

We provide the first contract-theoretic analysis of how best to sell package tours to heterogeneous tourists in an environment with asymmetrically held information. Our analysis has three practical implications. First, asymmetric information tends to hamper package tour sales. Second, some tourists (high-type) will benefit from asymmetric information but others (low-type) will not. Third, low-type tourists tend to buy package tours with inefficiently low quality and they may also be unable to buy a package tour.