I dream of one day visiting every single wonder of the world. Last December, I was able to cross Machu Picchu off my list. It was remarkable.
But in the process of arranging the trip, I was surprised to see the immense amount of regulation placed on the historical site and the city it resides in. Machu Picchu is in a city called Aguas Calientes in Peru. As tourism has begun to increase at an exponential rate, the country has taken precautions to mitigate its effects. While these regulations can be annoying at times, it’s important to understand why they exist, why they continue to become more stringent, and how they contribute to economic efficiency. This understanding comes first from recognizing the effect that the business of tourism at Machu Picchu has on the site itself. Tourism can present huge negative externalities on the site of Machu Picchu and the village its entrance resides in. These externalities are driven by tourist consumption. Therefore, I argue that the massive crowds at Machu Picchu present a negative consumption externality. The thousands of tourists who enter the ruins of the ancient Incan civilization can be somewhat unsurprisingly, extremely destructive: they climb structures, erode the land, take stones, and damage the area. (Not to mention that it's virtually impossible to get a photo without these tourist hoardes in it.) Which, in turn can hinder the experience for future visitors. But that’s not where their impact stops. The thousands of tourists that flood the village of Aguas Calientes everyday make life for those who reside there permanently difficult. While tourism accounts for a huge portion of revenue for the village, it also causes massive overcrowding.
But the concept of this negative consumption externality at Machu Picchu isn’t a new one. Peru has been trying to mitigate it for decades and continues to do so through both regulation and price hikes. For instance, in addition to regulating the number of people allowed to enter Machu Picchu, Peru also controls when they may enter/leave, how long they may stay, and how quickly they must complete their hikes of Huayna/Machu Picchu mountain. These regulations literally limit the number potential destructors of the citadel by putting a cap on consumption. What makes these regulations even more effective are the high prices that come along with them. To get to Aguas Calientes, you often must take a plane, bus, and a train—all with individual ticket prices. After you get there, a single bus ticket to get up and down from Machu Picchu can cost anywhere from $50-$75. Once you get to the top, entering the ruins costs another ~$50. If you want to do any of guided hikes, that costs ~$100 and needs to be completed in under 4 hours. These price hikes partnered with stringent regulation limit the number of people who can afford to travel to Machu Picchu and thus limit consumption of the area, thereby mitigating some of the negative externalities it imposes and preserving the beauty of the Machu Picchu ruins for a little longer. Hopefully long enough for the next one of us wandering wahoos to visit.
1 comment:
As we discussed in class, it seems that Machu Picchu may not have negative consumption externalities associated with it. However, there may be negative and positive production externalities that come from the production of Machu Picchu.
Sabrina actually touches on both in her piece but I would like to flesh these out. As Sabrina mentions, “The thousands of tourists that flood the village of Aguas Calientes everyday make life for those who reside there permanently difficult”. Aguas Calientes is the village that is closest to Machu Picchu. There is overcrowding and it seems plausible that the infrastructure is getting destroyed a little bit faster due to the permanent flow of tourists. This is a negative production externality because the production of Machu Picchu reduces the well-being of the village nearby without any compensation. The tourists are consuming Machu Picchu, while depleting the village.
It also seems like there may be positive production externalities. Sabrina mentions that Machu Picchu has actually created a whole economy in Peru based off tourism. The village nearby would receive some of these benefits. According to Sabrina, most or all of the travelers have to go through Aguas Calientes to reach Machu Picchu. This brings more customers to the eateries, craft markets and other local businesses there. They can sell their merchandise to the tourists which boosts the economy of Aguas Calientes. These extra consumers exist because of the production of Machu Picchu, but the village does not compensate Machu Picchu for this added benefit.
In order to decide whether or not there is allocative efficiency, and possibly decide who should compensate who (either Machu Picchu compensating the village due to negative production externalities or the village compensating Machu Picchu because of positive production externalities), both the benefits and costs of these production externalities would have to be quantified and compared.
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