Modeling quality deterioration in package tours : an application to China's "zero-fare" group tours

Abstract

The business of package tours has seen a wide range of inferior quality. The most prominent one would be the so-called "zero-fare" group tours, a terminology originated in China's outbound tourism market to portray a complex of inferior quality. Drawing upon the Lemons problem and reputation theories which regard asymmetric information as the fundamental cause of inferior quality, this study has developed a set of eight agency models that conceptualize inferior quality in package tours as either adverse selection in the source market, moral hazard at the destination, or a blend of both. At the base level of these agency models is a causal relationship between adverse selection and moral hazard, which provides a theoretical account for "zero-fare" group tours as a complex of inferior quality. These agency models were tested at the levels of products, individual tourists, and the market as a whole with applications to China's outbound tourism. The data were collected via two surveys which were administered to tour escorts and individual tourists at the product and individual tourist levels respectively from December 2010 to June 2011 and, at the market-level, from a secondary dataset that covers the development of China' outbound tourism market over the period of 1993 to 2010. The results have shown that asymmetric information measured by production technology and effort, respectively, resulted in tourists’ choice of tour packages with rigid production technologies in the source market and tour operators' supply of low-quality travel services at the destination, indicating the occurrence of adverse selection and moral hazard. Of particular importance is that adverse selection was found to be generated by moral hazard, suggesting a life cycle of inferior quality in package tours.