A micro-analysis of demand for travel goods: an application to the business traveler

Abstract

The purpose of this study is to test two hypotheses: (1) that tax deductibility and the joint benefit nature of goods on the business-pleasure borderline increases the demand for business travel and (2) that deductibility and jointness decreases price elasticity. The methodology of the study is a comparison of the expenditure behavior of business travelers with that of pleasure travelers. The Linear Expenditure System allocation model is applied to tourist expenditures on individual travel goods at a particular destination. Six different classes of goods are analyzed: (1) food, (2) lodging, (3) recreation, (4) local transportation, (5) clothing and (6) other. Budget data for tourist parties are from the Hawaii Visitors Bureau expenditure surveys for 1974, 1977, and 1980. Business travelers are shown to have higher expenditures than pleasure travelers for food, lodging, and local transportation. The LES minimum demanded quantities also appear to be higher for business travelers. The uncompensated price elasticities of business travelers are significantly smaller than that of pleasure travelers for (1) local transportation, (2) clothing and (3) other, and appear to be smaller across all categories of goods. Compensated own and cross price elasticities are insignificant for the business traveler.