Modeling expenditure differentials of international tourists by targeted utility: A synthesized theoretical and quantile decomposition approach

This paper introduces conditional counterfactual quantile decomposition methods to the literature on tourism consumption, where observed expenditure differentials are directly referred to differences in tourists’ targeted utility. Decomposition terms are synthesized with the neoclassical framework of utility-constrained expenditure minimization, such that their interpretations do not rely on the approximation of tourists’ preferences by typical socioeconomic expenditure determinants. Using survey data from an underrepresented sun, sea, and sand destination, we show that differences in tourists’ targeted utility prior to the trip translate exclusively into higher quantities demanded of consumption-related antecedents, as opposed to higher prices paid by high utility-targeting tourists. The paper suggests that decomposition analysis may guide profit maximization in the tourism industry.