| Hawaii tourism entered a mature phase during the late 20 th century, characterized by reduced rates of increase in visitor counts and smaller increments to hotel capacity, but more frequent shocks. Exogenous macroeconomic conditions produce cycles of tourism performance; hotel construction in Hawaii also varies cyclically. This dissertation adapts a deterministic dynamic optimizing model of investment behavior as a theoretical basis for empirical models of Hawaii hotel investment. The models show that the cyclical pattern of hotel investment in Hawaii is consistent with rational investment decision-making informed by contemporaneous economic variables. Hotel investment is neither irrational nor capricious. The paper adapts stochastic dynamic optimizing models of investment to investigate the impact of uncertainty on hotel investment in Hawaii. The empirical tests do not resolve, unambiguously, whether uncertainty is positively or negatively related to hotel investment. However, the empirical work demonstrates that the volatilities of hotel construction, visitor arrivals and hotel room rates, adjusted for inflation, are time-varying. Their conditional volatilities blend a diffusion, or white noise, component with increasingly frequent jumps. Further research focused on jump risk may resolve questions on the investment-uncertainty relationship. The quantitative results contribute to the empirical literature on the supply side of Hawaii tourism, a literature well developed for travel and tourism demand. Prices matter: room rates, hotel wages, interest rates and the incremental cost of capital explain the observed pattern of hotel investment in Hawaii during the late-20th century. |
