Subsidies and Sustainable Tourism: Balancing Demand Guarantees with Environmental Damage from Tourism

This paper considers the problem of taking a managerial decision associated to an investment project in a trail designed for tourist activities. Our real options models study the existence of alternative temporary minimum demand guarantee policies aiming to encourage new private investments, but without neglecting the potential environmental damages when the number of tourists is too excessive. We provide an elegant analytical characterization for both the value function of the active project and for the infinite-horizon optimal stopping problem.