Second Homes: The Effects on Social Welfare of a Change on the Valuation of Individual Opportunity Cost

This paper studies the Impact of a correct valuation of the opportunity costs in individual decisions and social welfare applied to a tourism problem. Starting from a partial equilibrium model, the study shows that the valuation of social welfare depends on the definition of individual opportunity costs. In particular, this study suggests that if the labor income is introduced in the valuation of the opportunity cost of the owners, then a free market of vacation homes is the best mechanism to obtain the maximum social welfare. The study concludes that the best public policy is to eliminate all restrictions to the vacation homes markets.