Tourism Management 59 (2017) 621e629

Contents lists available at ScienceDirect

Tourism Management
journal homepage: www.elsevier.com/locate/tourman

Reconsidering the estimation of the economic impact of cultural

tourism
Andrew Torre, Helen Scarborough*
Department of Economics, Deakin University, Australia

h i g h l i g h t s

Estimating economic impact with minimal data.

Ability to use cost benefit analysis with minimal data.

Comparison of economic impact using different approaches.

a r t i c l e i n f o a b s t r a c t

Article history: The assessment of the economic benefits of cultural events is necessary to inform decision-making. In
Received 24 May 2016 many cases cultural events are designed to attract tourists and the injection of tourist spending to a local
Received in revised form economy is one of the drivers for hosting events. From an economic perspective, the impact of staging an
25 September 2016
event can be measured using either an expenditure multiplier or a cost benefit analysis (CBA) approach.
Accepted 27 September 2016
One of the difficulties with CBA is the data required to estimate the relevant benefit function. This paper
Available online 3 October 2016
addresses this limitation by illustrating how benefit functions can be parameterised with minimal data,
thereby enhancing the possibility of using CBA. Our approach is illustrated with a case study of an
Keywords:
Economic impact
exhibition held by a regional community in Australia. The case study compares economic impact as-
Cost benefit analysis sessments and finds using benefit estimates as we propose provides a useful method of estimating
Benefit function benefits with limited data.
Cultural tourism © 2016 Elsevier Ltd. All rights reserved.

1. Introduction there are wider societal externalised benefits produced by the

The theoretical rationale for publicly provided subsidies to the
Arts is controversial, nevertheless governments fund them, albeit
some would say too modestly [Abbing (1980) and Cwi (1979)]. As
an example, in Australia, the state government of Victoria's 2015-16
budget provides $29.4 million for the activities, programs and
services of the creative industries (State Government of Victoria,
2015). Since arts' events are also tourist attractions, cultural activ-
ities and tourism are mutually beneficial activities. The former
widen the range of consumption and entertainment opportunities
available to tourists, while an expanding tourism industry increases
the financial viability of cultural activities and promotions by
increasing patronage and therefore event revenue. In addition,
* Corresponding author. Deakin Business School, Deakin University, Burwood
Campus, 221 Burwood Highway, Burwood, 3125, Victoria, Australia.
E-mail addresses: andrew.torre@deakin.edu.au (A. Torre), helen.scarborough@
deakin.edu.au (H. Scarborough).
participation of tourists in the domestic cultural economy. As
Wilkinson (2014) has written: “one thing is certain, less art will
mean less social self-reflection and less social progress. Without
art, a society thinks less deeply and less often about ethical, moral
and social challenges.”
An important and interesting economic problem is the assess-
ment of the social value of expenditure commitments such as art
exhibitions both to the domestic economy directly, and to cultural
tourism indirectly. Economics provides a tool kit for casting
considerable light on this problem. In practice, the two most
common analytical techniques employed are: (i) economic impact
studies based on the application of expenditure multipliers and (ii)
social cost-benefit analyses (CBA). Briefly, a CBA is based on esti-
mating the net surplus of an activity, which is defined as total social
benefits (TSB) minus total social costs (TSC), while an impact study
assesses the additional expenditure in the region as a consequence
of tourists coming to it because of an event. It generally excludes
the expenditure of domestic residents, because it is assumed their

http://dx.doi.org/10.1016/j.tourman.2016.09.018
0261-5177/© 2016 Elsevier Ltd. All rights reserved.
622 A. Torre, H. Scarborough / Tourism Management 59 (2017) 621e629
expenditure would have been made anyway in the region on the
next best alternate activity. Abelson (2011), like many economists,
concludes that CBA is the preferred theoretical method for esti-
mating the economic impact of major events to any designated
community. Nevertheless, the application of multipliers to estimate
economic impact is widely accepted and illustrated. A fine example
is by Teigeiro and Diaz (2014) who estimate multipliers for the
activity of hotels and restaurants.
The novelty of our approach is to illustrate a methodology
whereby good estimates of tourism impact measured using CBA
can be obtained with minimal data by parameterising and cali-
brating benefit functions. In so doing, we also diagrammatically
focus on the theoretical relationship between the net surplus and
expenditure multiplier approaches to evaluating impact. This en-
ables us to highlight the similarities and differences between both
techniques, more sharply than we believe is usually the case.
A case study of a specific one-off event, a Grace Kelly exhibition
conducted by a regional Art Gallery in Victoria, Australia, which
attracted a significant number of interstate and overseas tourists, is
used to empirically illustrate our reasoning and analysis. Using a
CBA approach with minimal data, we estimate that this special
event generated a net surplus of approximately $8.7 m to $15.2 m.
All figures are in 2012 $A. An impact assessment conducted by
economic consultants using the expenditure multiplier method
suggested a slightly higher impact of approximately $16.31 m.
Comparison of the two approaches using the case study illustrates
the potential for using calibrated benefit functions to estimate
economic impact rather than more expensive and data intensive
application of economic multipliers.
The paper proceeds as follows. Section two outlines the theoretical
frameworks and the similarities and differences between the two
methodologies. Section three describes the case study and compares
the estimates of economic impacts using the alternative measures.
The results are discussed and conclusions summarised in section four.
2. The theory underpinning the measurement of economic
impact
The economic consequences of an event can be measured as: (i)
a change in real income in the region hosting the event, measured
through the application of expenditure multipliers, or (ii) an in-
crease in net surpluses estimated using a CBA. The two techniques
are interrelated. Fig. 1 brings both of these together in the one di-
agram, in order to clarify visually, and more analytically their
similarities and differences. The activity of a special art exhibition
hosted by the Bendigo Art Gallery, in Bendigo, which is a city in
northern Victoria, Australia is used to illustrate our discussion.
The horizontal axis measures services produced by the Bendigo
Art Gallery, including special exhibitions, and the vertical axis
measures all other goods and services produced in the Bendigo
regional economy, including those as a consequence of the exhi-
bition. A consumer's relative preferences or tastes for the two
commodities is represented by a utility function. This shows the
relationship between quantities consumed and utility or satisfac-
tion derived from that consumption. It is assumed that the con-
sumer is rational and consumption of a commodity is subject to
diminishing marginal utility. The first assumption implies that the
consumer's budget will be allocated between the two commodities
such that the last dollar spent on art gallery services yields the same
satisfaction as the last one spent on other goods and services, while
the second ensures that income is not all allocated to only one
commodity. Utility functions are represented geometrically using
downward sloping convex indifference curves, such as U1 and U2 in
Fig. 1A. Both of these show combinations of both commodities that
yield the consumer the same level of satisfaction. Given the
consumer's objective of utility maximisation, every point along U2
is preferred to U1 since utility is higher.
In Fig. 1A, consumer equilibrium occurs at E2 where the higher
indifference curve is tangent to the consumer's budget constraint
HJ. This is an equilibrium because the consumer's willingness to
substitute art gallery services for other commodities reflecting
relative tastes, (slope of the indifference curve), equals the rate at
which the market will allow substitution to occur (slope of the
budget constraint HJ, which is equal to relative prices PA1/P01).
The lines BL and CF are special types of regional income lines for
the Bendigo economy, where regional income is equal to:
PO1*O1 þ PA1 * A1 ¼ I1. They differ from the usual income lines
because they capture expenditure by non-locals or tourists only,
since impact studies are solely concerned with this expenditure
category. It is important to remember that local expenditure on the
event is ignored, as this is assumed to be shifted from something
else in the domestic economy. BL pertains to period 1, before the
special exhibition, while CF pertains to period 2. In the case of CF,
relative prices are fixed at the base period, i.e. PO1*O2 þ PA1 * A2 ¼ I2.
Between periods 1 and 2, the increase in real regional income is
therefore equal to BC in terms of other goods and services and LF in
terms of art gallery services, reckoned using a Laspeyre's quantity
index where period two quantities are values at base period prices.
The increase in real regional income, as a consequence of the spe-
cial activity, is shown by drawing a parallel line to the initial income
line BL. Economic impact studies focus on estimating the extent of
the shift in BL, which is obtained by applying a multiplier value to
the non-local expenditure base.
A CBA analysis approaches the issue of social value of the event
through a different lens by examining the TSB and TSC. TSB is defined
as consumer surplus plus total expenditure (TE). Consumer surplus is
the difference between the consumer's maximum willingness to pay
(WTP) for the good or service and the actual price paid. In Fig. 1A
maximum WTP for art gallery services (the exhibition) is derived as
follows. We identify all combinations of income and art gallery ser-
vices that give the same utility to the consumer. Given that the de-
cision maker's maximum income is equal to OH, an indifference
curve U1 is drawn that begins at H on the vertical axis. It is drawn
below U2 because the maximum WTP (KH), involves a larger outlay
than GH, which is the expenditure on A1 art gallery services. The TSB
from the production and consumption of A1 art gallery services
equals HK consisting of total expenditure HG and consumer surplus
GK. TSC is equal to OM worth of foregone other goods and services.1
Therefore TSB e TSC ¼ KM ¼ net social benefits. (This analysis as-
sumes a utilitarian welfare function where the utility of each con-
sumer is treated equally.) Importantly, unlike the impact approach,
TE comprises outlays on the event by both locals and tourists.
If TSB > TSC, then the Kaldor-Hicks compensation test is satis-
fied, i.e. the gainers are able, in theory at least, to compensate the
losers and still be better off. If instead Fig. 1B was applicable, then
TSC > TSB, since TSB ¼ HK - TSC ¼ OM ¼ MH þ OK, which is a net
social cost. In this case the compensation test is not passed. Given
the potential social costs (such as congestion, litter and disruption)
as identified by Deery, Jago, and Fredline (2012), this scenario of TSC
exceeding TSB is not unrealistic for some major events.
Our comparative framework can now be used to consider how
other scholars have conceptualised the relationships portrayed in
1
TSC in economic terms is measured as the amount of income required to
compensate the losers as a consequence of increasing the production of art gallery
services. Since there are no externalised costs from the production of the special
exhibition, the losers in this instance are the factors of production, primarily labour,
that have to be drawn from the other uses, which are measured on the vertical axis.
This necessitates a further assumption that no unemployed resources are used to
produce the extra gallery output.
 A. Torre, H. Scarborough / Tourism Management 59 (2017) 621e629
Fig. 1. A. The relationship between a CBA and an expenditure multiplier approach. B. The relationship between a CBA and an expenditure multiplier approach.
Fig. 1A and B. The tourist expenditure multiplier approach to
evaluating impact focuses on the increase in factor incomes
generated by the event, while a CBA examines whether a net sur-
plus has been produced. A net surplus comprises producer, or
business surplus, consumer surplus and labour surplus. The first
and third surpluses are earned income above the minimum
required to attract entrepreneurial and other labour resources to
the activity being evaluated, while the second is an intangible
consumption benefit defined most simply, as the difference be-
tween a buyer's maximum willingness to pay (WTP) and the actual
price paid for a good or service.
Burgan and Mules (1992) interpret an expenditure multiplier
study and a CBA as being equivalent when there are no, or very few
local consumers and the resources used for the event are unem-
ployed, while Hone (2005) notes that under these circumstances,
given that all consumers are outsiders total expenditure would equal
total producer surplus. If all resources were unemployed then TSC
would be zero, however it is not clear to us what mechanism ensures
that TSB comprising CS plus total expenditure would exactly be equal
to the shift in the income line. Unlike total expenditure, consumer
surplus is unobservable without knowledge of a representative
tourist's demand or maximum WTP curve. (Furthermore, unlike
producer and labour surpluses, consumer surplus is not included in
total expenditure.) The sum of these three surpluses is an alternative
measure of total social benefits in a CBA, since total expenditure in-
cludes labour plus producer surplus.
Applying a multiplier to an expenditure base seems to be only a
proxy for this, as we shall illustrate in the next section. The other
critical point is that a multiplier based study and a CBA can diverge
623
markedly in their outcomes, for two reasons: (i) the composition of
total expenditure and (ii) the former ignores the social cost of
attaining the increase in real regional income. As an example of (i),
Lee and Taylor (2005) illustrate through a study of the 2002 world
cup the need to separate tourists into those directly or indirectly
attracted by an event, and conclude that existing models of impact
assessment have significant limitations. The second point is vividly
illustrated in Fig. 1B, where the multiplier based study registers a
positive outcome, since real income increases, however the CBA
registers a net social cost, implying that resources allocated to the
activity were used inefficiently.
3. Putting the theory into practice
In order to explore in some detail the distinction between the
alternate approaches to economic evaluation a case study of a
specific one-off event, a Grace Kelly exhibition conducted by a
regional Art Gallery, has been used to compare impact estimates
under the two approaches. The case study highlights the contri-
bution of our method of estimating surpluses to increasing the
feasibility of a CBA approach, even when data is limited. The
Bendigo Art Gallery, is a regional gallery in Victoria, Australia,
which supplements its normal operations with the hosting of
special exhibitions. According to the 2011-12 Annual Report of the
Bendigo Art Gallery, special exhibitions generated total revenue of
$4,336,539 at a cost of $3,103,548 yielding a profit of $1,232,991
(Aurecon, 2013). One notable example was the Blockbuster Art
Exhibition (Grace Kelly: Style Icon, from the Victoria and Albert
Museum, London) held at this gallery over the period March to June
624 A. Torre, H. Scarborough / Tourism Management 59 (2017) 621e629

2012. Even though, in retrospect, the event was financially viable,

A
we cannot say without further analysis whether or not social
welfare actually increased as a result of its staging. The converse
proposition would also apply because a financial loss making ac-
tivity may actually improve social welfare.

3.1. Economic evaluation using a CBA approach

As noted, total social benefits can be estimated either as (i) the sum
of total expenditure plus consumer surplus, or (ii) as the sum of
consumer plus labour plus producer surpluses. In terms of data re-
quirements, the first approach is easier to implement. Most of the
basic data we rely on for our case study comes from an economic
impact and market research report on the Grace Kelly Exhibition
produced by the private consultancy International Event Resources
(IER) Pty Ltd (2012). The consultants defined in-scope expenditure as: B
‘expenditure by visitors to the City of Bendigo, who were motivated to
visit or extend their length of stay by the staging of the Grace Kelly
Exhibition’, and estimated it to be $7,448,695. Presumably this con-
sisted of spending on accommodation, meals and other activities. For
a multiplier based study this would be the primary expenditure base.
The CBA total expenditure figure would be broader because it ag-
gregates in-scope plus domestic expenditure on gaining access to the
event. Basic welfare economics assumes that if someone spends $100
to gain entry to an event then it must yield at least $100 of equivalent
benefits, which is the position adopted by a CBA given its welfare
economics foundations. The same considerations apply to visitors'
other expenditure on things such as accommodation and meals.
The Grace Kelly Exhibition attracted 140,097 visitors all of whom
had higher incomes than average. [The 2011 census revealed that the
median annual household income in Bendigo and Melbourne was
$49,764 and $69,316 respectively, while the corresponding figures
for surveyed visitors to the exhibition was between $75,000 and Fig. 2. a. Linear demand function. b. Exponential demand function.
$99,000 (IER 2012)]. Attendees came from: (i) The City of Bendigo:
15,383 or 11%; (ii) Regional Victoria: 27,683 or 19.8%; (iii) Melbourne: available, is to use calibrated policy analysis. This assesses the
82,769 or 59.1%; (iv) Interstate: 13,702 or 9.8% and (v) Overseas: 560 policy implications of a given set of benchmark data values and
or 0.4% (IER). In the case of the 15,383 visitors who lived in Bendigo, elasticity assumptions (Cooley, 1997).
their relevant expenditure was the entrance fee, i.e. TE ¼ 15,383*$20, While benefit functions can be either linear or non-linear, the
which is $307,660. To be conservative, we have assumed that the former tend to be used as approximations when the analyst is inter-
opportunity cost of all attendees' time spent travelling to the site and ested in relatively small price changes. However in the case of larger
then consumed while at the exhibition is equal to zero, as we adopt ones, which is the focus of our analysis, non-linear constructs are
the view that most people do not lose income from leisure and travel generally preferred, since they will most likely give more accurate
consumed over their holidays and weekends (Prayaga, Rolfe, & estimates of consumer surplus. With calibration methods, WTP func-
Sinden, 2006; Ward & Beal, 2000). Table 1 sets out the relevant tions are found indirectly from price elasticity of demand estimates.
expenditure for each category of attendee. Their great advantage is that the data requirements are parsimonious;
a value of the own price elasticity of demand and the corresponding
3.1.1. Consumer surplus price and quantity combination are sufficient to retrieve the demand
In order to estimate the consumer surplus of attendees, it is function. Fig. 2a and b below represents a linear and exponential de-
necessary to retrieve, parameterise and then calibrate their mand function, both of which show the relationship between visits/
maximum willingness to pay locus for the blockbuster exhibition, time period on the horizontal axis and price on the vertical axis.
in order to be able to measure the marginal social benefits of each The consumer surplus, equal to area A in Fig. 2a and b, is the
visit and the TSB of all visits. The demand curve measures the difference between what visitors would have been prepared to
marginal social benefit when there are no externalised benefits. spend to visit the exhibition, and what they actually spent.2 Price
The estimation of consumer surplus can proceed in one of two elasticity of demand is a measure of expenditure responsiveness to a
ways. First demand functions can be econometrically estimated small change in price. It is the standardised slope of the demand
using standard statistical techniques. This method requires a rela- function at the co-ordinates P and Q. Since it is independent of the
tively large number of data points, which typically are not available units in which P and Q are measured, it is said to be a dimensionless
to the analyst. The alternative, when there is very little information metric.
Table 1
Total Expenditure on the Exhibition by each Group.

Local visitors Tourists Total 2

Strictly speaking, a compensated or Hicksian demand function needs to be
retrieved to give exact welfare measures. However since the typical consumer's
Number 15,383 124,714 140,097
expenditure on art gallery exhibitions will represent a very small proportion of his
Total expenditure $2,717,020 $7,448,695a $10,165,715
or her total income, the uncompensated or Marshallian demand function in Fig. 1 is
a
Primary or in scope expenditure. a suitable substitute for analytical purposes.
 A. Torre, H. Scarborough / Tourism Management 59 (2017) 621e629 625

For a given linear (1) and exponential (2) demand curve: Table 2
Estimates of consumer surplus of Grace Kelly exhibition at Bendigo regional gallery.
aP 0.6 1.2 1.5
Q¼ (1) Elasticity
b
Linear

 Maximum WTP $53.33 $36.66 $33.33
P 1 Consumer surplus $2,344,487 $1,166,199 $928,215
Q ¼ Ln (2) Exponential
a b
Maximum WTP $107.43 $46 $40
Consumer surplus $4,483,988 $1,583,290 $1,227,203
the own price elasticity of demand (e) is equal to:

vQ P 1 P P 1 P 1 a
e¼ ¼  aP ¼ and  ¼ ¼
vP Q b aP Pb  P lnP ln P the consumer surplus of travellers to the Grace Kelly display. We
b a  ln a

b
(3)
The two unknown parameters a, and b in (1) and (2) can be
inferred from a knowledge of the elasticity corresponding to point
e* in Fig. 2a and b. Since no direct econometric estimates of the
elasticities are available, we derive these from economic theory,
logical reasoning and benchmarking against related previous
studies.
The arts and culture industry comprises two main sectors, the
live performing arts: theatre, opera, symphony concerts and dance,
and the fine arts: painting and sculpture (Heilbrun & Gray, 2001).
Art museums, exhibitions, galleries and dealers are included in the
latter sector. It might be thought that since there are a large number
of cultural and non-cultural substitutes in consumption for art
exhibitions, own price elasticities of demand for cultural goods and
services would be relatively high. However, the services of this
industry have been described as an acquired taste or increasingly
addictive, with the implication that consumer tastes grow stronger
with exposure, making substitutes less acceptable and therefore
reducing expected price elasticities (Heilbrun & Gray, 2001). Given
that both groups in Table 1 earned above average incomes, the quite
modest exhibition entrance fee would have constituted a very small
part of the total expenditure for their trip. At least for the local
visitors, these factors suggest a quite inelastic own price elasticity
of demand would have prevailed at the entrance fee of $20 (Frey &
Meier, 2006). Actual empirical estimates are sparse. A reasonably
relevant study is Throsby and Withers (1979), who examined the
attendance rates of seven major professional Australian performing
arts companies for the years 1964-74, and concluded that ‘the
attendance price elasticity seems to lie in the range 0.60 to 1.16,
affirming as for the United States, a relative inelasticity of demand
for performing arts services with respect to the real price changes
experienced by these companies over the period of analysis’.
Furthermore income had no impact on attendance rates.
In situations where significant travel is required to reach the
event, the usual practice is to define price more broadly to include
this cost. Consequently, for the benchmarking exercise in the case
of the tourists, the most relevant and recent empirical study is
Vicente and De Frutos (2010) who estimated the demand curve
using the individual travel cost method, for the large temporary art
exhibition ‘Kyrious’ the thirteenth exhibition of the ‘Ages of
Mankind’ in Spain, a series of blockbuster exhibitions displaying
religious art. Travellers in effect revealed their WTP by the amount
they were prepared to expend travelling to the particular location
of the exhibition. The authors' mean estimates of the own price
elasticity was 1.1967. Similarly, Poor and Smith (2004) found price
elasticities for linear, semi-log and log-log models of 1.08, 1.05
and 1.26 respectively, in the case of an archaeological and historic
site in St. Mary's City in Maryland USA, which shares similar
characteristics to a regional art gallery.
On the basis of these reviews, we adopt the three own price
elasticity of demand values of 0.60, 1.2 and 1.5 for estimating
estimate consumer surplus by calibrating the following linear and
non-linear (exponential) demand functions. Full derivations are
contained in the Appendix. Allen (1938) lists the exponential
function ‘as an example of suitable demand laws that satisfy the
normal monotonic decreasing condition.’
Linear:
e ¼ 0:6 P ¼ 53:33  0:00023793Q (4)
e ¼ 1:2 P ¼ 36:66  0:000118965Q (5)
e ¼ 1:5 P ¼ 33:33  0:000095712Q (6)
Exponential:
e ¼ 0:6 P ¼ 107 e0:000012Q (7)
e ¼ 1:2 P ¼ 46 e0:000006Q (8)
e ¼ 1:5 P ¼ 40 e0:000005Q (9)
The consumer surplus results are shown in Table 2 and the net
social benefits for both groups in Table 3.3 The total expenditure
incurred by the Bendigo gallery in staging the exhibition was
$1,961,000, and this is used as a proxy for TSC (Aurecon, 2013). It is
likely that there are social costs to the community which have not
been identified in this analysis. However, these are not expected to
be extensive as the event is not large or concentrated enough to
cause disruption and congestion, and the audience profile does not
suggest an increase in anti-social behaviour.
When the estimates of the total social costs of staging the
exhibition are taken into consideration, the net social benefit from
the exhibition, is estimated to be between $8.7 m and $15.2,
assuming an exponential demand function and depending on the
elasticity estimate. Given the high number of tourists visiting the
exhibition, it is reasonable to assume that the higher bound of this
net social benefit range is more realistic, as the tourists are more
likely to have a relatively more inelastic demand for the exhibition.
The following section compares these estimates with the
3
While integration gives an exact result and is the preferred approach, in the
case of a linear demand function, an approximation is available. The value of the
consumer surplus depends on the maximum WTP. Drawing a flatter demand
function through point e in Fig. 1 is consistent with a lower maximum WTP and
therefore consumer surplus, keeping total expenditure constant. While the co-
ordinates do not change, the slope of the demand function decreases. In the case of
a linear demand function, the inverse relationship between maximum WTP (a) and


the own price elasticity of demand is given byP 1e þ 1 . A horizontal demand
function of infinite elasticity drawn from the vertical coordinate $20 and running
through e ¼ 1 yields zero consumer surplus. Since the area of the triangle A is half
the area of the rectangle B, given that e ¼ 1, the relationship between consumer
surplus (CS), total expenditure (TE) and e is given exactly by: CS ¼ TE
2e. At other
values of e the relationship is approximate.
626 A. Torre, H. Scarborough / Tourism Management 59 (2017) 621e629

Table 3 added of $150 (manufacturer's wages þ profit). The production or

Estimates of the net social benefit of the Grace Kelly exhibition. output multiplier is equal to the output at each stage of production
Elasticity 0.6 1.2 1.5 $300 þ $200 ¼ $500:$300 ¼ 1.66. This involves double counting at
Linear
each stage of the supply chain. The local income or value-added
Maximum WTP $53.33 $36.66 $33.33 multiplier, which measures the real income generated in the
Consumer surplus 2,344,487 $1,166,199 928,215 region, avoids this problem and would be equal to:
Total expenditure 2,717,020 2,717,020 2,717,020 $100 þ $150 ¼ $250:$300 ¼ 0.83. This multiplier must be  1, and will
(i) Group 1a
only be 1 if there are no imported components in the supply chain. In
(ii) Group 2b 7,448,695 7,448,695 7,448,695
TSB: (i) Group 1 5,061,507 3,883,219 3,645,235 our case study, the consultants used a multiplier with a value of 1.82,
(ii) Group 2 9,793,182 8,614,894 8,376,910 which suggests that it was an output multiplier and therefore prone to
TSC 1,961,000 1,961,000 1,961,000 ‘double counting’ bias. Local income multipliers are typically closer to
NSB: (i) Group 1 3,100,507 1,922,219 1,684,235
0.5 (Matheson, 2006). Applying this value to the direct expenditure of
(ii) Group 2 7,832,182 6,653,894 6,415,910
Total Net Social Benefit 10,932,689 8,576,113 8,100,145
$8,960,099 gives an estimated secondary increase in regional income
Exponential as a consequence of the exhibition of $4,480,049 and a total economic
Maximum WTP $107.43 $46 $40 impact of $13,440,148.
Consumer surplus 4,483,988 1,583,290 1,227,203 The amended estimate of $13.4 m, using multiplier analysis, falls
Total Expenditure (i) Group 1 2,717,020 2,717,020 2,717,020
within our range of computed net social benefits ($8.1 m to
(ii) Group 2 7,448,695 7,448,695 7,448,695
TSB: (i) Group 1 7,201,088 4,300,310 3,944,223 $15.2 m) using a CBA methodology. This is contrary to the con-
(ii) Group 2 11,932,683 9,031,985 8,675,898 ventional wisdom that expenditure multiplier studies will always
TSC 1,961,000 1,961,000 1,961,000 produce results that are biased considerably upward relative to an
NSB: (i) Group 1 5,240,088 2,339,310 1,983,223 equivalent CBA study. The relevant issue is the need for caution in
(ii) Group 2 9,971,683 7,070,985 6,714,898
Total Net Social Benefit 15,211,771 9,410,295 8,698,121
choosing the appropriate multiplier value.
a
Local visitors in Table 1.
b 4. Discussion and conclusions
Out of region visitors in Table 1.

multiplier-based economic impact study which was undertaken for
the exhibition.
3.2. Economic evaluation using an expenditure multiplier study
Consultants were employed to evaluate the economic conse-
quences of the exhibition and used an expenditure multiplier
approach. They estimated that the benefit of the exhibition was
approximately $16.31 million, which is slightly higher than our
upper bound estimate of $15.2 m using CBA methodology (IER
2012). The $16.31 m figure was obtained by applying a general
input-output multiplier of 1.82 to total direct in-scope expenditure
for the Bendigo economy of $8,960,099, and comprised tourists'
outlays of $7,448,695 plus a further $1,511,404 generated by the
Bendigo Art Gallery (IER 2012). The first expenditure component
tallies with tourists' value of total expenditure in Table 3 used to
compute NSB, while the second is assumed to be new injected
expenditure into the Bendigo economy that has not been switched
or diverted from some other use. (If the expenditure was switched,
it would properly be counted as part of the social cost of the event
and not as a benefit.) We consider the consultants' $16.31 m impact
estimate to be high, because a generous multiplier has been used.
They describe their measure of secondary impact as ‘a general
input-output multiplier’. However three types of multipliers can be
derived from regional input-output models: output, employment
and income or value added, and the last one is the preferred choice
(Burgan & Mules, 1992; Matheson, 2006). Employment multipliers
are only relevant when permanent jobs are created.
Janeczko, Mules, and Ritchie (2002) define the income multiplier
as ‘showing total income left in the local economy after leakages, after
the increase in economic activity due to expenditure on the event.’
The numerical value of the income multiplier must be less than one.
Consider the following example. An exhibition visitor to Bendigo
purchases a locally made business suit from a retail outlet for $300.
The $300 sale price can be decomposed into: (i) the retailer's value-
added of $100 consisting of wages plus profit and (ii) the local man-
ufacturer's sale price to the retailer of $200. The manufacturer's price
of $200 can be further broken down into: (i) production inputs ¼ $50,
all of which are imported from outside the region, and (ii) value-
The task that we set ourselves at the beginning of this project was
to be able to provide reasonably good estimates of the social value of
a once-off special event, an art exhibition hosted by the Bendigo Art
Gallery in regional Victoria. Since the majority of visitors were in
effect tourists specifically attracted by the activity, our efforts sub-
stantially translated into placing a value upon tourism. In order to do
so, it was necessary to utilise a methodology that could be imple-
mented when minimal data was available to conduct empirics.
Equating social with economic value, enabled us to draw upon and
carefully compare, two popular and well known techniques used to
measure economic contribution, an expenditure multiplier study
and a cost benefit analysis. We have stressed however, and carefully
illustrated that these are not perfect substitutes. Rather they are best
viewed as potentially complementary products, which measure
contribution from two different perspectives, changes in regional
real income and in economic surpluses.
This distinction also raises the issue of whether the emphasis of
measuring the economic impact of tourism events should be focused
only on the effect on the local community or on social welfare more
generally. The emphasis which we have placed on economic sur-
pluses, is grounded in a utilitarian approach. There are two relevant
philosophical issues associated with a utilitarian approach. The first
relates to the question of “standing”, and whether all preferences
should be included in social welfare (Zerbe, 1998). For example,
within a tourism management context, the question of whether all
preferences are included may be related to the inclusion or not of the
preferences of the non-domestic population.
The second philosophical issue relates to the weighting of
preferences which are included in the CBA. For example, if all
preferences are included, then should benefits and costs to those
outside the community be given equal weight to benefits and
costs to the regional community? A strength of a CBA approach is
the potential to include distributional weights in the CBA analysis
(Scarborough & Bennett, 2012). For example, if non-utilitarian
preferences are assumed, the benefits to the tourist community
could be weighted differently to the costs to the regional com-
munity. These two issue provide a fertile area for future research
in the analysis of the economic impact of tourism.
In comparing the two methods, an expenditure multiplier
study will always yield a positive result, while a CBA may yield a
 A. Torre, H. Scarborough / Tourism Management 59 (2017) 621e629 627

negative one. This is because the former ignores the social or generally, which we alluded to in our introduction. Consequently
opportunity cost of attaining the increase in real regional income. our results might be interpreted as a lower bound estimate.
However it is not necessarily the case that an expenditure Nevertheless, we stress that the ability to estimate benefits
multiplier analysis must yield a result substantially higher than a functions, if estimates of elasticities are available, provides a
CBA. Holding constant TSC and assuming only tourists frequent complementary measure of the economic impact of special
the event, the relative magnitudes and their exact difference will events. Finally, our endeavours highlight the critical need for
depend on the size of the consumer surplus. Noting that the share further research of case studies which compare the methods of
of producer surplus and labour surplus in additional factor income estimating the economic impact of specific events, and the po-
will be equivalent to total expenditure by tourists on the event, tential development of methods of estimation with minimal data.
enabled us to quantify TSB more easily as the sum of total The use of elasticities to calibrate benefit functions suggests a
expenditure and consumer surplus, rather than the more data cost-effective method of estimating economic impact, and with
demanding consumer surplus plus producer surplus plus labour further research of the relevant elasticities this method could
surplus. Hence, the valuable contribution of this paper to the prove a valuable addition to its measurement.
literature is the illustration that surpluses suitable for a CBA
approach can be estimated with minimal data by calibrating the Acknowledgements
benefit functions. We note that a CBA is used less often than an
expenditure multiplier study in tourism and special event con- The authors would like to acknowledge the contributions of
texts in particular, possibly due to data constraints. Additional Kerrie Bridson and Rebecca Love to the early stages of this work.
comments made in the literature cautioning decision-makers
about expenditure multiplier studies include: Dwyer, Forsyth,
and Spurr (2004 and 2016) and Li and Jago (2013). Dwyer et al. Appendix
(2016) note that the application of multipliers to assess eco-
nomic impact, effectively assumes that there are no impediments (i) Linear demand function:
to resource flows between sectors of the economy. Li and Jago
a P
(2013) provide a meta-analysis of the evaluation of major sports Q ðPÞ ¼  ; PðQ Þ ¼ a  bQ
b b
events and highlight the fact that CBA can evaluate wider benefits
and costs brought about by an event.
e ¼ 0:6
For our case study, the economic impact estimate of $13.4
million using appropriate expenditure multipliers, falls within the
range of estimated CBA net surpluses of $8.7 to $15.2 million, only if
a non-linear demand function is assumed. The linear demand
Using Q (P):
function yields a smaller range of net surpluses: $8.1 to $10.9
million, producing the common result in the literature of a higher dQ 20
economic impact using the expenditure multiplier methodology. 0:6 ¼ 
dP 140; 097
Although the gap in this case study is minimal. As is expected, the
differences depending on the functional form, are also reflected in
1 20
the respective range of consumer surplus estimates: $1.2 to $4.4 0:6 ¼  
million and $0.9 to $2.3 million for the non-linear and linear
b 140; 097
respectively. As we argued previously, we would place more con-
fidence in the non-linear specification and results for our problem 1
0:6 ¼  *0:000142758
at hand. b
As potentially complementary techniques, an expenditure
multiplier study and a CBA could inform tourism management of 0:000142758
0:6 ¼ 
special events. Careful studies can provide society with very useful b
information about the allocation of its scarce resources across
different tourism based projects. In order to do this, it would be 0:6 1
¼
necessary to compare the social return from the capital invested in 0:000142758 b
the exhibition by the Bendigo Art Gallery with alternative projects
that might have been considered, in order to achieve the stipulated 0:000142758
¼ b ¼ 0:00023793
objectives, such as attracting the maximum number of tourists to 0:6
the region. At the very least, what can be said about the Grace Kelly
Solving Q (P) for a:
Exhibition is that it did most likely increase social welfare,
including that of tourists, as measured by a CBA. However whether a 20
or not it represented the best use of the gallery's scarce resources 140; 097 ¼ 
0:00023793 0:00023793
cannot be answered, on the basis of the available information. A
multiplier applied to an appropriate expenditure base study how- 20 a
ever, cannot inform resource allocation decisions, unless the social 140; 097 þ ¼
0:00023793 0:00023793
cost of increasing real regional income is known. If social cost
exceeded the increase in real regional income, then expenditure 224; 155ð0:00023793Þ ¼ a ¼ 53:33
committed to holding the special event would be inefficient. A
limitation of this paper is that we have focussed on the estimation
53:33  20
of economic benefits and further work needs to be done on the Q ðPÞ ¼ ; PðQ Þ ¼ 53:33  0:00023793Q
social cost side of CBA. 0:00023793
Our analysis is limited by the fact that the estimates ignore the Maximum WTP ¼ $53.33.
very difficult to measure externalised benefits of art more Change in CS:
628 A. Torre, H. Scarborough / Tourism Management 59 (2017) 621e629

Z
140;097 ¼ ð$4; 669; 433­939; 278­2; 801; 940Þ ¼ $928; 215
PðQ Þ 53:33  0:00023793Q dQ  P0 Q 0
0 (ii) Natural exponential demand function:


Z
140;097
0:00023793Q 2 Q ðPÞ ¼  ln Pa 1b; PðQ Þ ¼ a ebQ where: a > 0 and b < 0.
53:33Q   P0 Q 0
2
0 Given an estimate of the elasticity and one value of P and Q, the
parameters a and b can be computed using Q(P).
The demand equations corresponding to the three elasticity
Z
140;097
values are:
53:33Q  0:000118965Q 2  P0 Q 0
0 e ¼ 0:6
Solving for b using Q (P):
¼ ð$7; 471; 373­2; 344; 946­2; 801; 940Þ ¼ $2; 344; 487
dQ P
0:6 ¼
e ¼ 1:2 dP Q


The parameter values are: a ¼ $36.66 and b ¼ 0.000118965 dQ P 1 1 1 1a1 11 1
¼  ln ¼  ¼ ¼ ¼
dP a b P a 1Pa Pb Pb
36:66  20 a
Q ðPÞ ¼ ; PðQ Þ ¼ 36:66  0:000118965Q
0:000118965 Substituting dQ/dP:
Maximum WTP ¼ $36.66.
Change in CS: 1 20
0:6 ¼ 
20b 140; 097
Z
140;097
1
PðQ Þ 36:66  0:000118965Q dQ  P0 Q 0 0:6 ¼  0:000142758
20b
0 0:000142758
0:6 ¼ 
20b
Z
140;097
12b ¼ 0:000142758
0:000118965Q 2
36:66Q   P0 Q 0 0:000142758
2 b¼
0 12
b ¼ 0:000012
Z
140;097
Solving for a by substituting back into:
36:66Q  0:0000595Q 2  P0 Q 0


0 P 1
Q ðPÞ ¼  ln
a b
¼ ð$5; 135; 956­1; 167; 817­2; 801; 940Þ ¼ $1; 166; 199
 
140; 097 20
¼ ln
e ¼ 1:5 1 a

0:000012
The parameter values are: a ¼ $33.33 and b ¼ 0.000095712
140;097 20
e83;333 ¼
33:33  20 a
Q ðPÞ ¼ ; PðQ Þ ¼ 33:33  0:000095712Q
0:000095712 20
0:18615 ¼
Maximum WTP ¼ $33.33. a
Change in CS: 0:18615a ¼ 20
20
Z
140;097 a¼ ¼ 107:43
0:18615
PðQ Þ 33:33  0:000095712Q dQ  P0 Q 0
0 P ¼ 107 e0:000012Q


Z
140;097 20 1
0:000095712Q 2 Q ¼  ln
33:33Q   P0 Q 0 107 0:000012
2
0
The change in CS is found by integrating:

Z
140;097 Z
140;097 
107:43
33:33Q  0:000047856Q 2  P0 Q 0 P ¼ a ebQ  P0 Q 0 ¼ e0:000012Q  PQ
0:000012
0 0
 A. Torre, H. Scarborough / Tourism Management 59 (2017) 621e629 629

Hospitality and Tourism, 16(2), 115e129.

¼ ð  1; 666; 572  2; 801; 940Þ  ð  8; 952; 500  0Þ Frey, B., & Meier, S. (2006). The economics of museums. In V. Ginsburgh, &
D. Throsby (Eds.), Handbook of the economics of art and culture (Vol. 1).
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University Press.
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e ¼ 1:2 No. 2. Melbourne: Deakin University.
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Bendigo art gallery, economic impact and market research study.
P ¼ 46 e0:000006Q Janeczko, B., Mules, T., & Ritchie, B. (2002). Estimating the economic impacts of fes-
tivals and events: A research guide. CRC for Sustainable Tourism.

 Lee, C., & Taylor, T. (2005). Critical Reflections on the Economic Impact Assessment
20 1 of a Mega-Event: The Case of 2002 FIFA World Cup. Tourism Management., 26,
Q ¼  ln 595e603.
46 0:000006
Li, S., & Jago, L. (2013). Evaluating economic impacts of major sports events- a meta-
analysis of the key trends. Current Issues in Tourism., 16, 591e611.
The change in CS is found by integrating:
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(Eds.), Handbook on the economics of sport. Edward Elgar Publishing Ltd.
Z
140;097   Poor, P., & Smith, J. (2004). Travel Cost Analysis of a Cultural Heritage Site: The Case of
46
P ¼ a ebQ  P0 Q 0 ¼ e0:000006Q  PQ Historic St. Mary's City of Maryland. Journal of Cultural Economics., 28, 217e229.
0:000006 Prayaga, P., Rolfe, J., & Sinden, J. (2006). A travel cost analysis of the value of special
0 Events: Gemfest in central Queensland. Tourism Economics, 12, 403e420.
Scarborough, H., & Bennett, J. (2012). Cost-benefit analysis and distributional pref-
erences: A choice modelling approach. Cheltenham, UK: Edward Elgar.
¼ ð  3; 411; 379  2; 801; 940Þ  ð  7; 796; 610  0Þ State Government of Victoria. (2015). 2015e16 state budget e Creative industries
output initiatives. Creative Victoria. Melbourne: State Government of Victoria.
¼ $1; 583; 290 Teigeiro, L. R., & Diaz, B. (2014). Estimation of multipliers for the activity of hotels
and restaurants. Tourism Management, 40, 27e34.
Throsby, C., & Withers, G. (1979). The economics of the performing arts. Edward
e ¼ 1:5 Arnold (Australia) Pty. Ltd.
Vicente, E., & De Frutos, P. (2010). Application of the travel cost method to estimate
the economic value of cultural Goods: Blockbuster art exhibitions. Hacienda
P ¼ 40 e0:000005Q Publica Espanola/Revista de Economia Publica, 196(1), 37e63.
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 tenham: Edward Elgar.
20 1
Q ¼  ln Wilkinson, C. (2014). Divestment push a pain in the arts. The weekend Australian,
40 0:000005 November 1e2.
Zerbe, R. (1998). Is benefit cost analysis Legal? Three rules. Journal of Policy Analysis
and Management, 17(3), 419e456.
Z
140;097  
40
P ¼ a ebQ  P0 Q 0 ¼ e0:000005Q  PQ
0:000005 Dr Andrew Torre: Andrew is an economist with experi-
0 ence in both the public sector and tertiary education. He is
a Senior Lecturer in economics in the Deakin Business
School at Deakin University. He completed undergraduate
¼ ð  3; 970; 756  2; 801; 940Þ  ð  8; 000; 000  0Þ degrees in economics at the University of Melbourne and a
¼ $1; 227; 303 PhD in economics at Latrobe University. Andrew's research
areas are legal economics and cost-benefit analysis: theory
and practice. His main expertise is in microeconomic the-
ory and its applications to analysing legal rules and institu-
tions. He has several publications in these areas.
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Dr Helen Scarborough: Helen is an economist with
experience in both the private sector and tertiary educa-
tion. She is an Associate Professor in economics in the
Deakin Business School at Deakin University and has a PhD
in environmental management and development from the
Australian National University. Her PhD won the Austra-
lian Agricultural and Resource Economics Society PhD
prize. Helen's research interest is in the area of applied
economics and her specific economic skills are in the areas
of cost-benefit analysis, economic valuation of non-market
goods and services and discrete choice modelling. She has
published extensively in economics journals and is the
author of a book on incorporating distributional prefer-
ences in cost benefit analysis. Helen has also had extensive
research project experience with involvement in research projects from a variety of
fields. Her research skills are both qualitative and quantitative and she has experience
in employing economic principles to a range of research questions.