The Demand of Car Rentals: a Microeconometric Approach with Count Models and Survey Data

Abstract

This study analyzes the demand side of the tourism market in the Autonomous Region of the Azores, Portugal, ranked by National Geographic as the second island destination for sustainable tourism among 111 islands in the world. Due to the high frequency of car rentals, this region is a “fly-and-drive” destination, experienced rapid growth in the tourism sector in recent years. It is well known that the excessive use of cars leads to negative externalities such as pollution and the degradation of roads. Considering ecological fragility, typical for small islands, it is crucial to investigate the extent of negative externalities for internalizing the congestion costs. This topic is very important in terms of policy-making for developing sustainable tourism destination as well as in a global environmental context, from the perspectives of "eco-taxes" used as instruments for enhancing environmental protection. A distinctive contribution of this study is the attention paid to the diversity of tourists used car rental services in the Azores. The demand function of car rentals is analyzed based on highly disaggregated, individual data containing a large number of tourists visited the Azores and the family of count models. Then, based on the price elasticity of demand for car rentals, the desired tax rates are suggested for internalizing the congestion costs