What is the optimal number of hotel rooms: Spain as a case study

Abstract

The main contribution of the paper is that it proposes a well-defined model and an empirical estimation technique for determining an optimal targeted number of incoming tourists and for getting as close as possible to this target by controlling variables that are affected by tourism authorities policies. We assume that the planner wishes to minimize the gap between the actual and the optimal number of tourists in order to get as close as possible to the optimally desired number. The actual number of tourists from each country is affected by the cost of travel as well as by exogenous variables. We constructed a system of two simultaneous equations, where the number of tourists and the cost of travel are the endogenous variables. We estimated the system for incoming tourism to Spain from various countries and forecasted the actual number of incoming tourists. Using the forecasted equation we were able to extract the optimal number of rooms needed in order to get as close as we could to the desired number of tourists.After defining several targeted levels for the number of incoming tourists to Spain from Canada, Japan, Belgium, The Netherland, US, Italy, France, Germany and UK, we extracted the optimal number of needed hotel rooms in order to get as close as possible to the targets.This paper is important since it provide a tool for the decision makers to effect the number of incoming tourists by changing the level of variables that are under the control of the decision maker.