Actos de Habla y Representaciones Sociales

The analysis for policy set within a micro context seeks to provide possible measures for understanding and assessing destination competitiveness with the aim of defining appropriate policies to achieve such competitiveness. It delves into the attributes of the products offered leading to quality considerations, focusing on the package holiday product. The aim is to inform policy about the product aspects, which tourists value and which, hence, require particular policies to be brought to bear.

The main reason for choosing the hedonic pricing model for this analysis was that it is grounded in the characteristics theory of value, which reflects that which was being researched, namely, the attributes which tourists value in a holiday package. The fact that the model is grounded in economic theory justifies its use and strengthens the validity of the results. The economic model specifies that

P(Z) = P(z1, z2,… , zn) (4.2) where P is the observed package price within the context of the empirical research, Z is the vector of attributes and z1…zn are the individual characteristics.

176

The hedonic pricing model was chosen as the appropriate model to conduct such an analysis, given that it is appropriate for competitiveness analysis (Stabler, Papatheodorou and Sinclair, 2010). It could be applied to identify and estimate variations in package prices over time – information required to understand competitiveness. Most of the literature applying hedonic pricing models used cross-sectional data for analysis. The research conducted here, whilst initially presenting two models using cross-sectional data relating to characteristics and comparing results, focuses primarily on utilizing panel data, which allows for the possibility of estimating the variation over time - “it incorporates much richer information from both time series and cross sectional data” (Song and Li, 2008, p.212).

Though panel data gives additional information that cross-sectional data analysis cannot provide, hedonic pricing models based on panel data are not common in the literature. Exceptions are Espinet, Saez, Coenders and Fluvià (2003) and Mangion, Durbarry and Sinclair (2005). Espinet, Saez, Coenders and Fluvià (2003) apply panel data to a hedonic pricing model to the areas of the southern Costa Brava in Spain, a single region in a major destination. On the other hand, Mangion, Durbarry and Sinclair (2005) apply panel data to the wider context of Mediterranean destinations. They examine inclusive tour holidays featured in a major UK tour operator’s brochure and include the UK’s consumer price index as a variable to estimate the effect of inflation on the package price.

Methodological differences are also present in this research, particularly in terms of the methodology adopted for the choice of variables to be included in the model, as further outlined later on in Chapter 7. Table 7.2 lists the independent variables included in the models. Suffice here to state that whereas in most of the literature, as outlined in the literature review chapter, the choice of variables is based on external information or previously published articles, the methodological difference present in this research is that factor analysis is applied to decide on the attributes which are to be included as variables in the model.

The hedonic pricing model was also adaptable for policy analysis, first to inform policy about the effect on prices of characteristics, relative price and the subsidization policy. The techniques applied for this econometric analysis will be outlined in Chapter 7. In informing policy, the hedonic pricing model estimates the effect of characteristics on package prices, indicating which characteristics need to be included or excluded in the package to increase or decrease the package price. Such results are then used to inform policy-making to adopt policies which support or discourage characteristics accordingly. The hedonic price model also allowed for the inclusion of particular variables which were important for such policy analysis and which may not be considered as ‘prima facie’

characteristics but which are in fact intrinsic to package pricing by tour operators. These variables, of a macroeconomic nature, included inflation, exchange rates and relative prices, as will be described in more detail in Chapter 7. Though microeconomic analysis is carried out through the hedonic pricing model, given that macroeconomic

178

variables may influence micro decisions and given that this has to be reflected in the model, such macroeconomic variables were included in the hedonic pricing models. The effect of the destination’s relative price on package prices is examined - an issue left, as yet, unexplored in the literature: this notwithstanding that price competition in the Mediterranean is a significant determinant of tourism demand.

The hedonic price model, additionally, could be adapted to assess whether policy (specifically the Maltese government’s subsidy policy), was reflected in the package price. This was done by including in the model relative prices and a dummy variable representing the subsidy policy. Hence the effect of the policy on destination competitiveness at the level of package holidays was estimated. Further details on this are provided in Chapter 7. The hedonic pricing model therefore was not only appropriate to inform policy but also to evaluate policy in terms of destination competitiveness.

4.6 Conclusion

This chapter has outlined the methodology adopted in this thesis for the empirical policy analysis. It has shown that whilst quantitative analysis – the approach adopted here - may be criticized mainly through postmodernist arguments, it does have strong merits particularly with regard to measuring what is measurable, and doing so as precisely as conceivable. Econometrics can assist in identifying and estimating certain effects that otherwise would probably be left unrevealed within the complex impacts of a policy. It not only has the

potential to evaluate past policies but also can direct future policy.

Caution is however to be exercised in applying econometrics for policy-making, since if not well modelled it could result in misguided policy. Utilising models which are grounded in economic theory ascertains a level of econometric policy analysis. Consumer behaviour theory and the characteristics theory of value underlie the econometric models applied in this thesis, AIDS and hedonic pricing models, respectively. The specification of the models is informed by these economic theories that throw light on the determinants of the budget shares in the case of the AIDS model and of the price in the case of the HP model.

Given that “extensive description and comparative history are fundamental entry points into any policy debate” (Sadoulet and Janvry, 1995, p.1), what follows is a descriptive analysis of the tourism policies that have characterized Malta’s tourism development.

The quantitative modelling, including the model specification, the data and variables used, the applied econometric techniques and results for the AIDS and HP models, is then presented in Chapters 6 and 7. This is done with a view to understanding some of the complex relationships and the magnitude of past and expected impacts.

180

CHAPTER 5: A DESCRIPTIVE ANALYSIS OF MALTA’S