Externalities and effectiveness of subsidies are an area of active research, both theoretical and empirical. Among recent papers are Parry and Small (2009), which develops a theory and empirically tests these in the context of urban transportation subsidies; an empirical study of externalities in the transportation sector by Bento et al. (2014); an empirical study of mortgage subsidies and home ownership by Fetter (2013); a theoretical study of contracting in the presence of heterogeneous externalities by Bernstein and Winter (2012); and a theory of taxation and subsidies in a production economy by Philippon (2010). Morrison and Siegel (1999) develop a model of agglomeration externalities and estimate it for U.S. manufacturing industries, and Harstad (2007) develops a game theoretic model of political cooperation among regions that try to internalize externalities. Despite the active research on externalities and subsidies within different settings, surprisingly little empirical work has been done on subsidies in the hotel sector.