The unprecedented expansion of tourism has created a plethora of opportunities for household sand businesses. Globally, households in regions with high levels of tourism are rapidly diversifying their livelihoods to tourism-based ones. While the tourism literature has heavily
focused on the fundamental decisions and decision-making process of tourism consumers, the decision-making processes of households in tourism destinations are poorly understood. Additionally, the role of power relations in tourism dynamics have been implicit or poorly
theorized. As a geo-politically sensitive border region, only opened to foreigners in 1992, Upper Mustang, Nepal, is an ideal region to explore these dynamics. Using Sustainable Livelihood Framework (SFL), this paper examines why the people of Upper Mustang diversify by adopting tourism-based livelihood strategies and how does agency vs structure influence their decisions to diversify. We employed a mixed method approach inclusive of a survey questionnaire with open- ended follow up questions and participant observations. Additionally, a temporal census data of hotels from 1992 to 2021 emphasizes how the caste system intersects with history and tourism development to generate and maintain an uneven playing field for tourism people in Upper Mustang. We argue that understanding the livelihood diversification dynamic requires examinations of power and interrelationships among stakeholders.