The Production and Consumption of The Arts

American Economic Association
The Production and Consumption of the Arts: A View of Cultural Economics

Author(s): David Throsby
Source: Journal of Economic Literature, Vol. 32, No. 1 (Mar., 1994), pp. 1-29
Published by: American Economic Association
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Journal of Economic Literature
Vol. XXXII (March 1994), pp. 1-29
The Production and Consumption

of the Arts:
A View of Cultural Economics
By DAVID THROSBY
Macquarie University, Sydney, Australia
I am grateful to Will Baumol, Tom Bradshaw, Tony Bryant, Graham

Madden, Sir Alan Peacock, Pasquale Lucio Scandizzo, Mark Davidson
Schuster, and two referees for helpful comments, and to numerous
colleagues for supplying me with copies of their work.
I. Introduction Likewise, support for the arts and cul-

ture in the U. S. through government and
BY MOST CRITERIA the arts comprise a voluntary contributions amounts to a sig-
significant area of economic activity. In nificant annual commitment of funds.
1990, American consumers spent $5 bil- Combined federal, state, and local gov-
lion on admissions to theater, opera, gal- ernment expenditure on the arts and mu-
leries, and other nonprofit arts events seums in 1987 amounted to about $0.8
(more than on admissions to spectator billion, and in 1990, 6.4 percent of chari-
sports), $4.1 billion on movie admissions, table giving was channeled to arts, cul-
and $17.6 billion on books. Because of ture, and the humanities, yielding a total
difficulties in defining boundaries around level of voluntary contributions in these
the arts industry, statistics on its contri- areas of $7.9 billion in that year. Private
bution to GDP are problematical, but markets in the arts, too, are of significant
available data suggest that the arts (the- size. Looking at the international art
ater, music, opera, dance, visual arts, trade, for example, we can note that the
crafts, literature, community, and folk worldwide net sales of the two major art
arts) account for a little under one per- auction houses (Christie's and Sotheby's)
cent of the United States GDP and a little amounted to $6.6 billion in 1989-90.1
over one percent of the civilian labor Yet, despite the fact that production
force. If the net is cast somewhat wider, and consumption of art have been ele-
defining the "cultural industries" as in- ments of human activity for longer than
cluding the arts, motion pictures, radio most of the phenomena that have en-
and television, and printing and publish-
' The year in which van Gogh's "Portrait of Dr.
ing, an aggregate value of output can be
Gachet" sold for $82.5 million; in the following year
measured for 1988 of about $130 billion the downturn in the market more than halved the
or 2.5 percent of GDP (National Endow- value of sales. Data from Policy Studies Institute
(1991, pp. 52-53).
ment for the Arts 1992).
1
2 Journal of Economic Literature, Vol. XXXII (March 1994)
gaged the attention of contemporary mol and William Bowen, Performing

Arts-The Economic Dilemma, pub-
economists, it is only relatively recently
that serious work has begun to be under- lished in 1966. For the first time a major
taken in the area that has come to be branch of the arts was subject to system-
known as "cultural economics," or more atic theoretical and empirical scrutiny.
particularly the economics of the arts. To those economists who cared to read
Major economists of the past have largely it at the time, it showed the extent to
ignored this field. There have been some which their discipline could illuminate
who have pursued a scholarly interest in a new and challenging area of interest,
art in addition to their economics, such using the familiar tools of economic in-
as Adam Smith, who wrote serious essays quiry.
on music, painting, dancing, and poetry, Since that time the field of cultural eco-
or John Ruskin, who was a leading nine- nomics has acquired an Association
teenth century critic of art and architec- (founded in 1973), a journal (first pub-
ture. Others have been (and are) artists lished in 1977), an international confer-
themselves of one sort or another, as Pea- ence (first held in 1979), and a growing
cock (1980) has pointed out. It is also body of literature. At a fundamental level
well known that Keynes was an active it has had to begin by facing the question
and passionate devotee of painting, the of defining art within the context of re-
theater, and ballet, and was centrally in- ceived economic theory. When asked to
volved in establishing the Arts Council define jazz, Louis Armstrong is reputed
of Great Britain, the principal vehicle for to have replied, "If you gotta ask, you
public support for the arts in that country ain't never going to know." A similar co-
to this day. But although Keynes spoke nundrum has beset economists such as
and wrote often on the importance of the Galbraith (1974) and Kenneth E. Boul-
arts in society, he never produced a ma- ding (1985) who have grappled with defi-
jor work in the field (James Heilbrun nitional issues in seeking to bring art
1984). within the economic calculus.
It was not until 1959 that John Kenneth The aim of the present article is to con-
Galbraith tackled the confrontation be- sider how far economics has gone over
tween economics and art, in a lecture the last thirty years, or how far it might
published in The Liberal Hour (1960). go, in exposing and analyzing the pecu-
He looked at the economic situation of liar problems posed by production and
the artist and at the potential for good consumption of the arts. The paper is
design to promote exports of American not a literature review; hence, many sig-
manufactures. At around the same time nificant works in the burgeoning litera-
across the Atlantic, Lionel Robbins ture of cultural economics have not been
(1963) was the first British economist of cited. Rather, it is an attempt to draw
modern times to analyze the economic together and interpret some principal
role of the state in support for the arts lines of research. In Part II of this article
and in financing public museums and gal- we look at the role of tastes as a funda-
leries, followed soon after by Peacock's mental driving force in the demand for
(1969) interpretation of arts subsidies and supply of art. Parts III and IV con-
within the framework of traditional wel- sider the markets for art works and for
fare economics. performing arts services respectively. In
But if contemporary cultural econom- Part V the characteristics of labor markets
ics has a point of origin, it would lie in in the arts are discussed, and in Part VI
the pages of the book by William J. Bau- we look at the broad area of public policy
Throsbu: The Production and Consumption of the Arts 3
toward the arts; questions of rationaliz- quired. Following the work of George
ing state support for artistic activity have J. Stigler and Gary S. Becker (1977) and
been among the major preoccupations of of Becker and Kevin Murphy (1988), a
economists who have delved into this theory of rational addiction covering
field since the writings of Robbins re- goods ranging from heroin (bad) to the
ferred to above. Finally Part VII specu- arts (good) can now be seen as consistent
lates on some lines of future develop- with more general theories of rational
ment. choice.
Regardless of the theoretical underpin-
II. Taste for the Arts nings, it is clear that the endogenization
The neoclassical view of tastes as given of tastes in economic models is likely to
and as differing in some systematic but be essential if any progress is to be made
unmeasured way between individuals in explaining demand for the arts.
says nothing in particular about the arts. Whether one calls it addiction or the cul-
But theories of demand that consign taste tivation of taste, the most relevant first
to a residual status shed no light on the step is to make taste for the arts depen-
formation of tastes or on their profound dent on past consumption, providing
influence on life-cycle consumption pat- thereby a plausible explanation for the
terns. rightward shifting of the long-run de-
The new consumer theory, as is now mand curve. In turn, further elaboration
well known, suggests that tastes are simi- of these ideas will enable a sharper defi-
lar between individuals, with variations nition of "cultural goods" and their rela-
in behavior caused by differing shadow tionship with other goods in the life-cycle
prices of commodities produced accord- consumption and investment patterns of
ing to household production functions in individuals and households. As we have
which material goods and services, in- noted, cultural consumption can be in-
cluding the arts, enter as inputs. But the terpreted as a process leading both to
arts can be further distinguished in this present satisfaction and to the accumula-
theory by their being addictive, in the tion of knowledge and experience affect-
sense that an increase in an individual's ing future consumption. Extension of the
present consumption of the arts will in- standard lifetime utility maximization
crease her future consumption. Such a models to include cultural as well as ma-
view can in fact be traced back to Alfred terial go-ods can demonstrate the cumula-
Marshall, who recognized that the taste tive nature of the utility generated by
for "good music" was an acquired taste consumption of cultural goods. In con-
that would increase over time with trast to ordinary goods, the current con-
exposure.2 In the household production sumption of cultural goods can be seen
model, the relative consumption of the as adding to rather than subtracting from
arts will rise over time, not because of the process of capital accumulation over
a shift in tastes, but because the shadow time, with obvious implications for
price of the arts falls as experience, un- growth theory and its predictions for op-
derstanding and other human capital at- timal growth rates. Within such a model
tributes associated with the arts are ac- Scandizzo (1992) finds growth rates for
cultural consumption that are chaotic and
2 In Chapter III of Book III of his Principles, Marshall unstable, due to the fact that it is rational
wrote: "It is therefore no exception to the Law (of to respond to the peculiar cumulative fea-
diminishing marginal utility) that the more good mu- tures of culture in a seemingly irrational
sic a man hears, the stronger is his taste for it likely
to become" (Marshall 1891, p. 151) way.
But, at the heart of the matter regard- world (some more so than others), and
ing tastes, both art lovers and artists thus have, to a greater or lesser degree,
themselves will argue that the inconsis- public-good characteristics, especially
tencies, spontaneity, and unpredictabil- when they are acquired by galleries or
ity in behavior in the arts will always defy collections for public showing. Because
rational explanation, because these re- art works can be resold, and their prices
sponses derive from notions of mystery, may rise over time, they have the charac-
imagination, and the unfathomable cre- teristics of financial assets, and as such
ative impulse. While this is doubtless may be sought as a hedge against infla-
true of some individual actions and reac- tion, as a store of wealth or as a source
tions in both production and consump- of speculative capital gain.
tion of art, aggregate data suggest other- For the purposes of economic analysis
wise. Tastes for the arts do seem to be of market behavior, the essential features
moved by systematic phenomena, such of artworks that animate the utility func-
that the aggregate behavior of consumers tions of buyers can be captured by distin-
and of artists can be modeled in ways guishing between art as decoration, i.e.,
that are mostly consistent with economic art providing immediate consumption
theory. In the remainder of this article, services through its aesthetic qualities,
we explore how much economics can say and art as asset, i.e., art providing finan-
about such matters. In the following two cial services through its potential for
sections we turn from a consideration of price appreciation. A Lancastrian inter-
cultural goods in general to the proper- pretation of demand is clearly appropri-
ties of the specific artistic goods and ser- ate, where "artistic" characteristics of
vices exchanged in the market place, works such as size, color, and other
looking first at art objects, and then at aesthetic values enter the utility function
the performing arts. for art as decoration, and riskiness, ex-
pected rates of return, and other financial
III. Markets for Art Works variables influence demand for art as as-
set. In such a construction of utility and
Original art objects (paintings, pieces demand for art objects, the reputation
of sculpture, and other artifacts) are, as of the artist can be seen as playing a sig-
a generic commodity group, character- nificant role. It is the primary correlate
ized by a set of attributes that distinguish with expected rate of return in assessing
them from all other goods. They are cre- the attractiveness of the artist's work as
ated only by individuals. Every unit of a financial instrument; at the same time,
output is differentiated from every other the place accorded an artist by historical
unit of output, an extreme case of a heter- or contemporary aesthetic judgment is
ogeneous commodity. For the work of indicative of the contribution the artist's
artists no longer living, supply is nonaug- work makes to the appeal of art for its
mentable. Art works can be copied but own sake, as decoration, or as a store of
not reproduced, in the sense that ulti- cultural value. Any plausible theory of
mately there is only one unique original demand for art works must evidently cap-
of every work of art. Paintings and sculpture the role of an artist's real or imag-
tures provide clear consumption benefits ined position in the firmament of artistic
to purchasers through their utilitarian creation in linking the various motives
characteristics as durable private goods. of buyers seeking particular works in the
At the same time, artworks form part of marketplace.
the cultural capital of a nation or of the The structural features of the art mar-
Throsby: The Production and Consumption of the Arts 5
ket in which these demands are ex- the primary market, so that in any one
pressed vary somewhat between coun- center there is only a restricted number
tries. But generally the art market can of artists represented in the market at
be characterized as comprising a series any one time. Given the resources re-
of linked submarkets. At the lowest level, quired to enter the market on the buying
sometimes referred to as the "primary" side and the somewhat arcane nature of
market, unorganized individual artists the product, the numbers of buyers, both
provide works to galleries, local art fairs individual and institutional, is similarly
and exhibitions, small dealers, and pri- constrained. Considerable market power
vate buyers; this market is highly decen- can be exercised by the galleries and
tralized. At the "secondary" level, in dealers who handle most of the sales in
markets located mostly in significant cit- this market. Not infrequently a gallery
ies where art is traded, such as New owner or art dealer can tie up the work
York, London, Paris, and Sydney, estab- of a particular artist so that he can behave
lished artists, dealers, and public and pri- effectively as a monopsonist in dealing
vate collectors circulate works by live art- with the artist and as a first-degree mo-
ists who have managed to make the nopolist in dealing with buyers. The ten-
transition from the primary market (for dency towards increased concentration at
example, by succeeding in having their the center of this market is heightened
work taken up by a recognized commer- by the fact that, over time, galleries and
cial gallery or dealer, or purchased by a dealers who handle the most successful
respectable public art museum), and artists attract both artists and buyers from
works by dead artists whose names are other allegiances to their stable; such key
still recognized. Finally, at the highest players in the market can exert a power-
level, an international market exists in ful influence on the rise and fall of artists'
which the major auction houses are the reputations, and hence on the future
main players, and where the works of price expectations for their work (Leslie
artists of the highest reputation are Singer 1981).
traded at prices that frequently make With some market participants holding
headline news. considerable power, it is not surprising
Market structure varies between these that markets for artworks can show evi-
levels. At the lowest level, competition dence of information asymmetry. A par-
is widespread. Universally there are ticular manifestation of this phenomenon
more artists and would-be artists than is the possibility of fakes or forgeries,
there are buyers interested in acquiring which are akin to "lemons" in the used
their work, so prices are low. Although car market, where the quality of goods
most serious painters undergo significant is known to sellers but not to buyers.
periods of training to qualify as profes- For example, in the market for nonfigura-
sional artists, as a group they lack the tive painting, following Tibor Scitovsky's
credentialing mechanisms of doctors and discussion of pattern-complex art in The
attorneys, and are thus unable to exert Joyless Economy (1976), Roger McCain
any supply-side power in this market in (1980) has suggested that the inability of
order to restrict competition or to raise some buyers to see the higher-order pat-
prices. terns of such art opens the way to fraudu-
The secondary market is considerably lent operators to misrepresent pattern-
more concentrated on both buying and less work as something better, i.e., to
selling sides. Only a relatively small pro- create a market for lemons. The effect
portion of artists make the transition from of such dishonesty may be, as George
Akerlof (1970) showed in the case of auto- on financial investments in the U.K., the
mobiles, to drive out business altogether. U.S., Germany, or France over that pe-
While such extreme outcomes have not riod was around 2.4 percent. Finally, for
occurred in the arts, the tendency exists, a portfolio of contemporary U. S. art held
and it might then be argued that correc- over the period 1987-1989, Singer (1990)
tion of the informational shortcomings in found a negative price differential against
such markets could provide a rationale alternative financial instruments of just
in principle for subsidy of pattern-com- over two percent.
plex art through some form of collective Most of these writers point to the
intervention. greater variability in the return to hold-
Ultimately, the major focus in looking ing paintings rather than financial assets.
at the economics of the art market is Most also suggest that the observed
likely to be on prices. Two questions are spread between average rates of return
of interest. How do rates of return on on art and other assets, after adjustment
investment in art compare with returns for risk, is a measure of the consumption
elsewhere? and What are the main deter- value of art works to their owners. This
minants of the prices of art works? hypothesis implies that if those who buy
Evidence on the comparability of rates art for nonpecuniary reasons such as
of return between art and other forms aesthetic pleasure, status, or prestige
of asset holding suggests fairly decisively value also hold stocks and bonds, there
that the average rates of return to invest- cannot be market equilibrium unless the
ment in the secondary and tertiary art difference in return, adjusted for risk,
markets are below those yielded by com- equals the value of the nonpecuniary
parable financial assets. For example, benefits provided by the art. Because the
W. Baumol (1986), using Gerald Reitlin- motives of individual buyers in acquiring
ger's (1961) data spanning more than 300 art are likely, as noted earlier, to range
years, computed a real rate of return of across a spectrum from demand for art
0.6 percent per year for a sample of paint- purely as decoration to demand for art
ings resold twice or more over the period purely as asset, such a hypothesis about
1652 to 1961, compared with a real an- average differentials is likely to cover a
nual rate of return of about 2.5 percent wide variation in individual behavior.
on safe British government securities To answer the second question posed
over the same period. Similarly, for above would require a properly articu-
1946-1968, John Picard Stein (1977) esti-lated model of both demand and supply
mated the nominal appreciation of paint- behavior in the market. Frey and Pom-
ings at 10.5 percent per year, compared merehne (1989a, Ch. 6) report a price
with a nominal annual return in the equation that could be interpreted as a
stockmarket of 14.3 percent. Bruno S. reduced form of such a larger model,
Frey and Werner W. Pommerehne wherein demand for artworks is ex-
(1989b) found that, while certain works plained by price, aesthetic quality, con-
of artists such as Cezanne, Gaugin, van sumer income, financial market charac-
Gogh, Monet, and Renoir have per- teristics, and other variables, and supply
formed much better than others overis the determined by prices and costs of pro-
long term, the average real rate of return
duction. In their estimated equations de-
on paintings was only 1.6 percent per rived from data on sales of work by 100
year in the period 1950-1987, based on top American and European artists over
a sample of 415 transactions; they esti- the period 1971-1981, price is shown to
mated that the real annual rate of returnbe influenced significantly from the sup-
ply side by production costs and size and prisingly the odds are very low. The con-
type of work, and from the demand side sequence of this for buyers is that playing
by consumer income, aesthetic evalua- the art market is little more than a game
tion, and rates of return on other assets. of chance. For artists, it means that ex-
Intrinsic to their estimates is the deri- pected returns from art practice, on aver-
vation of a measure of aesthetic quality. age, are likely to be low, a matter to
Frey and Pommerehne adopt a measure which we return in Section V below.
that assigns points to the evaluation by
art experts of various aspects of an artist's IV. The Performing Arts
work. The resulting measures can be
A. Demand
used to rank artists in order of the "qual-
ity" of their output as assessed by the A demand function for attendance at
cognoscenti of the art world. Following live events in theater, opera, dance, and
the earlier work of Friedrich Schneider music would be expected to contain own
and Pommerehne (1983a), these authors price, price of substitute entertainments,
show that these aesthetic evaluations are consumer income, and quality character-
not random, but are systematically re- istics of performances as explanatory vari-
lated to measurable attributes of the art- ables. The diversity of the product, and
ist's work history, including school of the discrimination of consumers in decid-
work, career stage, and past achieve- ing their attendances at particular perfor-
ment.3 Even so, there is no convincing mances, suggests that the qualitative
evidence to date that art "experts" can characteristics of events (who is appear-
consistently outperform the market in ing, what the critics have said, what
judging the potential appreciation of cur- work(s) are being performed) are likely
rently traded art. to dominate price in determining de-
Artists in turn have an interest in ad- mand. Furthermore, consumption of the
vancing their careers, if only for the rec- live arts is highly time-intensive, indicat-
ognition that such progression provides ing that the price of leisure time is likely
for the quality of their work. Artist's ca- to be more influential in determining de-
reers can be seen as a series of stages mand than the ticket price itself.
related to the stratified market structure In examining the determinants of de-
discussed earlier, whereby advancement mand in the performing arts, a distinction
can be seen as a step up from one market can be drawn between demand for imme-
level to the next. Buyers, in turn, might diately accessible entertainments such as
be seen as trying to pick those artists popular musicals, live entertainers, cir-
who are most likely to make a transition cuses, and so on, and demand for what
to a higher stage, in the expectation that are sometimes referred to as the "higher"
their prices will rise as a result. W. Bau- performing arts, including opera, "seri-
mol (1986) and Singer (1990) have exam- ous" drama, classical music, jazz, classi-
ined the probabilities that a given artist cal and modern dance? and performances
will make a successful transition; not sur- in any art form that are experimental or
avant-garde. In the former case, the less
3 Nevertheless, in a dynamic world, it is not appar-discriminating nature of demand means
ent that aesthetic judgments are made independently
that substitutes are more readily availa-
of the price of an artist's work; Thorstein Veblen
pointed out as long ago as 1899 in The Theory of ble, and hence own-price responsiveness
the Leisure Class that a person's assessment of the is likely to be greater. In the latter case,
beauty of an object is likely to be influenced by its
where consumption reflects the sort of
cost. If so, the simple price determination models
referred to above will need to be respecified. acquired taste discussed in Section II
above, lower price elasticities might be firm or even for a single performance.
expected among established consumers, Thus what is true for the industry may
for whom qualitative characteristics of not be true for the individual enterprise.
performances are likely to be decisive. Marianne Victorius Felton (1992), for ex-
With regard to income, on the other ample, found price elasticities for the ma-
hand, demand for the performing arts jor U.S. orchestras of around -0.6 and
would be expected to be somewhat more for major ballet and opera companies
responsive. In the first place, some per- ranging from about -0.1 to about -0.6,
forming arts can be seen as luxury items, whereas the elasticities facing individual
associated with social status and the de- companies within these groups were
sires of the wealthy for conspicuous con- found to be significantly larger, with
sumption; the phenomenon of "first some greater in absolute terms than -1.
nights," at which attendees are more in- Although most (but not all) studies
terested in looking at each other than at have identified a significant positive coef-
what is on the stage, is common in many ficient on consumer income in estimated
countries. Second, increasing consump- demand equations, the corresponding
tion of the arts over the long term is elasticity estimates have varied above
linked with education, which in turn is and below 1. Because, as noted above,
a significant determinant of income. live arts consumption is time-intensive,
Hence a positive association can be estab- gains in attendances over the long run
lished via this path between attendance due to increasing incomes are likely to
at the performing arts and the income be offset to some extent by the increasing
of consumers. price of leisure. Glenn Withers (1980)
Empirical studies of demand for the confirmed this proposition using data
performing arts undertaken over a num- covering all U. S. performing arts for the
ber of years have been broadly consistent period 1929-1973; he found a "pure" in-
with the above observations. At the outcome elasticity of around unity, com-
set, several early studies identified per- posed of a "full" income effect (imputing
forming arts audiences as being of signifi- leisure time as part of income) of 2.7,
cantly higher educational, occupational offset by a leisure price effect of about
and income status than the community -1.6.
at large (W. Baumol and Bowen 1966; Cross-elasticities, too, have been
Ford Foundation 1974). Subsequently found to be significant, given the wide
time-series and cross-section demand range of possible substitutes for the per-
studies have built up a clearer picture forming arts, not just from outside the
of the importance of various factors affect-industry (movies, reading, watching tele-
ing demand for the performing arts. Most vision) but also from within. In the latter
interest has centered on price. One of regard, James H. Gapinski (1986) exam-
the earliest studies, that of Thomas ined competition between theater, op-
Moore (1966), is typical; he found a price era, dance, and symphony orchestra per-
elasticity of demand for Broadway the- formances in London through the decade
ater of -0.33 to -0.63, and this result of the 1970s, and found demand elastici-
has been broadly confirmed by a number ties with respect to substitute price
of subsequent studies in different art within this group of companies to be al-
forms and different countries. It is always ways positive and ranging up to 2 and
true, however, that demand for groups above.
of companies is likely to be less elastic Finally, because of the difficulties of
than demand for the output of a single measuring the quality of performances,
most demand studies in the performing as an output variable to the number of

arts have had to consign the effects of performances), and output sold, mea-
variations in quality to residual status. sured as actual numbers paying to attend.
An exception is the experimental study When performances are given in
by Throsby (1983) which identified sev- closed venues of fixed capacity, output
eral quality characteristics of live theater of the performing arts can be seen as an
performances, including standard of excludable local public good, nonrival in
script, acting, and production, and found consumption up to the point where a ca-
consumer demand to be inelastic with pacity constraint is met. At a more gen-
respect to ticket price but strongly re- eral level, output of the performing arts
sponsive to variations in expected qual- can be characterized as a mixed good,
ity. with joint production of a private compo-
nent enjoyed by individual attendees and
B. Production and Cost
a public-good component deriving from
Performing arts firms, like other the value of the arts and culture to society
productive enterprises, combine labor at large.
and capital with given technology to pro- Interpreting output as number of at-
duce output. While the inputs employed tendances, and ignoring administrative
by the firm are clearly enough defined, and other inputs not related directly to
the specification of output is not so artistic production, a simple model of the
straightforward. Superficially, the output performing arts production process can
of a symphony orchestra is a concert, or be set up as follows. Suppose a perform-
that of a theater company is a perfor- ing company (theater group, opera com-
mance of a play. But there is a difference pany, musical ensemble, etc.) can vary
between the manufacture of a produc- the number of productions and the sea-
tion-the setting up, the rehearsing, the son length for each production within a
integration of various elements into a sin- given accounting period, say one year,
gle interpretation of a score or a script- over which time venue capacity v is fixed.
and a performance, which is a repetitive Let yij = attendances at the i-th perfor-
process that reproduces the same "out- mance of the j-th production, i = 1, ...,
put" over and over again. Furthermore, mj; j = 1, ..., n; y?j ' v. Define Ls and
interpretation of output in these terms Ks as the set-up labor and capital re-
does not capture the fact that the purpose quired to mount a production (rehears-
of a performance is to provide a "cultural als, construction of sets, etc.) and Lr and
experience" for an audience which itself Kras the operating labor and capital em-
may be thought of as the final product; ployed per production (actors' and atten-
hence, an alternative measure of the out- dants' labor, consumables, etc.). Then,
put of a performing company can be assuming output price is constant, we can
taken as the number of attendances over write
a given time period, an approach similar
to that used in defining the output of a = -Eiy0j = yj(Ljs, Kjs, mj, qj) (1)
university as the number of enrollments,
with
or that of a hospital as the number of
patients. Nevertheless, a distinction
m= mj(Lj, Kj) (2)
should perhaps be made in the perform-
ing arts between output produced, mea- where qj summarizes quality variabl
sured as the number of seats available describing the j-th production; note that
for sale over a given period (equivalent quality in this context may be measured
in terms of the lavishness of the produc- where Yt = total attendances for a com-
tion, in which case it is clearly not inde- pany in period t, and where the factor
pendent of Ls and Ks, or in terms of otherinputs are measured as aggregate quanti-
characteristics such as type or period of ties in the different categories over the
work being performed, in which case a time period considered. A proxy for qt
strong influence on y would be likely. capturing at least some aspects of aggre-
In this system mj, the number of perfor- gate quality in the period would be re-
mances of the j-th production, may be quired.
seen as an intermediate product, being A simpler alternative to (3) for which
interpreted as an output in (2) and an data might be more readily obtainable
input in (1). For a given production, the is provided by
relationship portrayed in (2) is likely to
Yt = Yt(nt, mt, qt, vt) (4)
be homogeneous of degree one, with
fixed factor proportions, although these where nt is the number of productions
proportions will differ between produc- for a company in period t, and mh is the
tions. In (1) it would be expected that mean number of performances per pro-
byj/8Mj > 0, 82yj /m12 < 0, that is, ex- duction. The venue size v in (3) and (4)
tending the season length of a productioncould be varied within a given location
is likely to cause attendances at the mar- (for example by installing new capacity)
gin to decline, indicating diminishing or by performing in a series of venues
marginal products of operating labor and of different sizes.
capital in (2) with respect to eventual out- Cost functions can be derived for the
put in (1). However, the marginal prod- above production model at given factor
ucts of set-up labor and capital are less prices. In the very short run, relating
easy to predict; it does not immediately to a single performance, or to a fixed sea-
follow that plays with more complicated son length for a single production, the
sets, or orchestras that have had more interpretation of output as a local public
rehearsals, will draw larger audiences. good means that virtually all costs are
For the short period represented by (1) committed to the first unit of output, and
and (2), possibilities for factor substitu- thereafter marginal costs are close to
tion are very limited. zero. In the short run the firm will typi-
The relationships depicted in (1) and cally incur relatively high fixed costs and
(2) could be estimated from data for one relatively low variable costs, indicating
or a group of companies in a particular declining average total costs. In the
art form for a single period of time. Over longer period, performing companies can
the longer run, time-series data for a be expected to have access to significant
given company, or pooled data covering scale economies in long-run production
a group of companies, might be used to and cost functions.
estimate an extended version of this sys- Empirical evidence on the production
tem wherein venue capacity is also vari- and cost relationships of firms in the per-
able. In such a situation the scope for forming arts is sparse. Several production
factor substitution between productions, functions consistent with the above prop-
or between more/fewer productions ositions were obtained for some Austra-
and shorter/longer runs, is considerably lian companies by Throsby (1977), while
greater. A long-run production function Gapinski (1980, 1984), using Cobb-
might be specified as: Douglas and transcendental functional
forms with U. S. and British data, has
yt = yt(Ls, Kts, L?, Kr, qt, vt) (3) demonstrated the basic regularity of pro-
duction processes in the major perform- served are for-profit proprietary compa-
ing arts. More attention has been paid nies, private nonprofit firms, and pub-
to costs, partly because a direct relation- licly owned and operated firms organized
ship between costs and output that by- on a nonprofit basis. In the U.S., data
passes the underlying production func- from the Census of Service Industries in
tion is simpler to estimate, and partly 1987 indicate that 22 percent of perform-
because data have been more readily ing arts organizations were nonprofit (tax
available. For example, studies by Ste- exempt) in that year, accounting for 27
ven Globerman and Sam H. Book (1974) percent of revenue, with the remainder
and Mark Lange et al. (1985) found evi- being for-profit (taxable) enterprises (Na-
dence of scale economies with respect tional Endowment for the Arts 1992).
to attendances and performances among These figures indicate a growth in the
theater, opera, and dance companies and proportion of activity in the performing
symphony orchestras. arts accounted for by nonprofit firms; cor-
Further research into production and responding figures for 1982 are 19 and
cost relationships in the performing arts 25 percent respectively.
will require more carefully articulated What explains this observed distribu-
models than the simple constructions tion of firm types in the performing arts?
outlined above. It will be necessary to In particular, why is the nonprofit form
search for more appropriate measures of prevalent in this area, especially in cer-
output and to make better use of existing tain subsectors of the industry? Several
measures, for example by controlling for theories have been put forward to explain
demand effects when paid attendances the appearance of nonprofit firms4 in a
are used as output; to account for the market economy. Burton Weisbrod
peculiarities of some labor contracts in (1977) has suggested that voluntarily es-
the performing arts; to allow for the non- tablished and financed nonprofit organi-
substitutability between some types of zations represent a response to an unsat-
labor (a tenor cannot stand in for an ailingisfied demand for public goods, where
soprano, nor can he be retrained as one); consumers consider the level of govern-
to find quality measures that go beyond ment supply of such goods to be inade-
crude budgetary proxies; and to model quate. Alternatively, Henry Hansmann
explicitly the differences in production (1980) has argued that consumers may
and cost structures between performing prefer nonprofit to profit-seeking firms
media, from small-scale drama to grand when buyers lack information or cannot
opera. Equally, better data will be essen- adequately judge the quality of goods or
tial to further empirical progress. If ad- services offered, such that ordinary con-
vances can be made in these respects, tractual mechanisms do not provide buy-
one possible benefit could be that future ers with protection against exploitation
work in the economics of the performing by producers. Other hypotheses relate
arts may be more useful to managers of the spread of nonprofit firms to the avail-
performing companies than has been the ability of government grants in certain
case in the past. areas or to the growth in charitable giving
encouraged by tax exemptions to donors.
C. Firm Structure and Behavior
A look at the performing arts industry

4 A nonprofit firm can be characterized as one
in most countries shows a range of firm which (a) is forbidden by law to distribute any surplus
to its owners; (b) is exempt from corporate income
types operating side by side in the mar- taxes; and (c) may receive contributions that attract
ketplace. The three common forms ob- tax exemptions for donors.
While each of these explanations can tions, or from government subvention,

be applied individually in greater or or both. Because neither private nor pub-
lesser degree to the performing arts, the lic donors are likely to contribute to a
most direct explanation of the existence firm where there is a possibility that
and distribution of different types of firmsfunds provided may simply add directly
in this area comes from an examination or indirectly to profits taken by the firm's
of market characteristics and consumer owners, it is most appropriate for enter-
motivation. Specifically, for some areas prises operating in this market sector,
of the performing arts, the demand curve whether private or public, to be incorpo-
facing the firm is above average cost over rated on a nonprofit basis.
a reasonable range of output and hence Nevertheless, it still remains to be ex-
profits are possible, though by no means plained why people will donate to such
secure ex ante because of demand uncer- firms, because as a rule neither consum-
tainty. These areas of the performing arts ers nor governments are willing to sup-
correspond broadly to the popular enter- port unprofitable enterprises in other ar-
tainment end of the spectrum described eas. The answer in the case of the arts
earlier. Firms in this sector tend to run appears to lie chiefly in the social worth
a single production over a long season of the firm's output as perceived both
and hence exhibit relatively low average by voluntary contributors and by govern-
fixed costs, with little difference between ments. We return to this question when
average and marginal cost. Requirements we consider the rationalization of public
for third-degree price discrimination are support for the arts in Section VI below.
met (separable markets, differing elastici- Modeling the behavior of nonprofit
ties, resale not possible between mar- performing arts firms raises some intrigu-
kets), and increased profits can be pur- ing questions. If the major argument of
sued by these firms via differential ticket the utility function of such a firm or its
prices for different groups of seats. In managers is not profit, what is it? In fact,
these conditions the profit-seeking pro- consistent with our earlier discussion, it
prietary form arises as the most appropri- can be proposed that the firm's utility
ate to this sector of the market. will be positively related to the level of
In other areas of the performing arts, attendances and to quality characteristics
however, the average cost facing the firm of output over a given period, and that
is everywhere greater than demand, with the utility function will be maximized
no ticket price that can cover costs, even subject to a budget constraint requiring
with differential ticket pricing for differ- zero net revenue. This model assumes
ent parts of the house. Such a circum- no separation of ownership and control
stance is characteristic of the 'serious" of the firm, such that the "firm's utility
or "high" arts as earlier defined.5 function" is identical with that of its own-
Under these conditions, if production ers and managers. A simple model of
is to occur at all, additional revenue will such a firm can be put forward as follows.
be required to close the gap between in- Imagine a performing company charac-
come and expenditure. These funds will terized by the production conditions de-
have to come from voluntary contribu- scribed in (1) to (4) above. Let the inverse
demand function be p = p(y). Without
'The dividing line between the two groups is not debating the means of measuring quality,
entirely clear cut; occasional examples may be found
let us simply assume a scalar q is available
of profit-seeking firms in the high arts (e.g., some
literary publishers), or of nonprofits producing popu- representing, in the eyes of the firm and
lar culture (e.g., some local theater groups). its supporters, a composite index of out-
put quality such that increasing q unam- grant income brought in by a unit in-
biguously denotes higher quality. Sup- crease in quality equals the marginal cost
pose that the level of donations and of securing that increase.
grants received by the firm, g = g(q), is Several writers have modeled the be-
an increasing function of output quality, havior of nonprofit performing compa-
i. e., donors will be prepared to give more nies, with particular emphasis on pricing
to assist the firm achieve higher quality decisions, including Throsby and With-
levels. Further, the firm gains additional ers (1979) and David Austen-Smith
gross revenue h from merchandising ac- (1984). The most thoroughgoing theoreti-
tivities such as provision of restaurant cal treatment is due to Hansmann (1981),
and bar services, sales of books, T-shirts, whose model permits analysis of the polar
etc.; such revenue would be expected cases of the firm as audience maximizer,
to be an increasing function of y. Let quality maximizer, and budget maxi-
c = c(y,q) be the total cost function of mizer. Hansmann argues that nonprofit
the firm covering all activities, artistic, performing arts firms engage in a pro-
administrative, and merchandising. Then cess of voluntary price discrimination,
the firm's decision problem is to select whereby they induce patrons to pay over
the price of output, p, and the quality voluntarily some or all of the consumer's
of output, q, to maximize surplus they enjoy through attending a
performance. This implies that, insofar
U = U(y,q) (5)
as the firm's pricing behavior is con-
subject to cerned with the maximization of revenue
(given the achievement of other objec-
p(y)y + g(q) + h(y) - c(y,q) = 0. (6) tives), it would set prices to maximize
the sum of ticket revenue and voluntary
The first-order conditions describing the
donations, rather than just ticket revenue
constrained optimum can be written:
alone.
UY!X + py Y + P(Y) + hyy = cy Much scope remains for further theo-

UqlX + gq = cq (7) retical and empirical work on the behav-
ior of nonprofit firms in the performing
p(y)y + g(q) + h(y) = c(y,q)
arts.6 Some potentially fruitful lines of
where subscripts indicate partial deriva- inquiry include the following. First, ca-
tives and X is the multiplier on the con- sual empiricism suggests strongly that as
straint (6). we move closer to the "serious" arts end
The first optimality condition in (7) in- of the spectrum, quality motives of firms
dicates that under these assumptions the become more important. A number of
utility-maximizing nonprofit performing firms in the high arts appear to operate
company will set its average seat price by setting ambitious quality goals in
where marginal revenue derived from terms of repertoire, casting, etc. for a
ticket and merchandise sales is less than forthcoming season, and then assessing
marginal cost, the difference being ac- whether expected ticket and grant reve-
counted for by the extra utility that the nue will be sufficient to meet these goals.
firm gains from increasing output. Simi- If not, the quality target is revised down-
larly, as shown in the second condition wards until a-feasible proposal is reached.
in (7), the firm gains additional utility
through increasing quality, and will
6 Note that most of this discussion of nonprofit per-
therefore devote resources to increasing forming companies is also applicable to art museums;
quality beyond the point where marginal see Martin Feldstein (1991).
A model which gave primacy to quality goals of personal advancement rather

and which explored further the interde- than objectives more identifiable with
pendencies between financial variables corporate well being, have been applied
and quality would be likely to have some in some nonprofit areas such as health
explanatory power; a prerequisite to such care, but have found little favor in the
a model, however, would be some prog- arts. Paul J. DiMaggio (1987) argues that
ress in resolving outstanding problems economists have accepted somewhat too
in interpreting and measuring quality in readily the notion of artists and arts man-
the performing arts. agers as being entirely unselfish and
Second, the essentially deterministic driven only by an ethic of cultural
nature of most models so far proposed achievement on behalf of the enterprise,
is a long way short of a reality where which suggests that analysis of conflicts
the occurrence of success or failure is in goal formulation and pursuit within
subject to substantial uncertainty and nonprofit arts organizations could open
seems often to be merely quixotic. The up a richer prospect than has been
development of a stochastic approach to hitherto expected.
decision making in this field, where firms One proposition worth pursuing is that
might be seen as trying to maximize the the individual welfare function of artists
probability of success of meeting certain and of arts managers in nonprofit compa-
objectives subject to fuzzy constraints, nies might include a variable denoting
would appear to hold promise. Third, in peer group reputation. Maximizing one's
a related vein, dynamic extensions to ex- standing among one's peer group, which
isting models would be useful to capture is clearly easier to achieve when profit
the many interperiod and developmental maximization is not the sole or main ob-
questions that are ignored in static for- ject of the firm, is, however, not neces-
mulations. For example, when the level sarily inconsistent with long-run wealth
of grants is dependent on certain strate- maximization, because prestigious
gies adopted by the firm, there may be awards given by artists to artists (such
a lag between firm behavior and an in- as the Booker Prize and other literary
duced donor response. Such a proposi- awards that are judged largely by writers)
tion is embodied in a model developed are often treated by consumers as indica-
by Austen-Smith and Stephen P. Jenkins tors of the quality of the product.
(1985), in which grant income in period
D. Technology and the "Income Gap"
t + 1 is dependent on output and finan-
cial performance in period t, and the zero So far in this section there has been
profit constraint is not binding in every no mention of technological progress. In
period. a pure sense, productivity improvements
Finally, we have referred above to the in the live performing arts are not possi-
"firm" as if it were, like the neoclassical ble in the same way as they are in, say,
construct, indistinguishable from its manufacturing. The physical output per
manager(s). In fact, nonprofit firms in the unit of labor input in the latter sector
performing arts may be structured in a has risen by several thousand percent
range of ways, from loose cooperatives over the last two hundred years, whereas
to complex corporate systems involving the labor required to give a live perfor-
separation of policy-making and execu- mance of a Mozart string quartet has not
tive functions. Managerial utility models changed in the slightest over the same
of firm behavior of the Williamson type, period. This fact, first remarked formally
in which managers pursue their own in 1965 by Baumol and Bowen, has given
rise to one of the longest-running debates mances to larger immediate audiences.

in the area of cultural economics: do the More importantly, broadcasting and re-
performing arts suffer from a "cost dis- cording technology can extend consump-
ease'? tion of a single performance thousands
In their original exposition, Baumol or even millions of times. While there
and Bowen (1965) used a two-sector are certainly qualitative differences be-
model comprising a productive (manufac- tween live and reproduced performances
turing) and an unproductive (arts) sector for both performers and audiences, the
to argue that wage rises in the economy scope for media dissemination to extend
as a whole could be offset in the pro- audiences and to improve the financial
ductive sector by productivity gains, but position of many performing companies
would simply result in rising relative is clear.7
costs in the unproductive sector. If de- Second, there have been substantial
mand were static, or rising too slowly, opportunities for adjustment in factor use
the outcome would be an inexorably wid- by firms in response to cost pressures,
ening gap between revenues and costs for example by improving technical effi-
for firms in the performing arts, requiring ciency at existing levels of output; by re-
ever-increasing subventions from gov- ducing inputs of some factors, such as
ernments or private philanthropists to performing plays that have simpler sets
keep such firms alive. In the 25 years or smaller casts; by other quality
following its initial presentation, this changes, such as performance of fewer
proposition has been widely seized upon contemporary works for which copyright
in a number of countries as spelling doom fees have to be paid; and by adopting
for the live arts unless governments in- other revenue-improving strategies, such
tervened, and both government funding as merchandising activities and better
agencies and the companies they support marketing and packaging. Of course, it
have made much of the cost-disease hy- is clear that such actions by a firm may
pothesis in pressing for ever more gener- have significant short- and long-run im-
ous subsidies. plications for the quality of its output, a
Over this period, too, there has been variable which, as noted earlier, is likely
some clarification and reassessment of to be one of the primary arguments of
the original proposition and the assump- its utility function.
tions on which it was based, and some Third, the factor price adjustments at
empirical work has looked more closely the core of the cost-disease hypothesis
at what cost trends have actually oc- have not occurred to the full extent sug-
curred. Essentially it can now be said gested by the two-sector model. The re-
that, while the basic logic of the cost alities of labor markets in the arts indicate
disease is, in its own terms, unarguable, that performing arts firms may not have
the causal chain linking certain charac- to match increases in wages generated
teristics of production of the live arts to elsewhere in the economy in order to
a widening income gap for performing attract or retain an adequate supply of
companies is by no means as inexorable
as many have supposed, for a number
7However, Hilda Batumol and William Baumol
of reasons. (1984a) point out that the media themselves are sub-
First, technical change can occur ject to a similar cost disease; for example, the costs
of production of television drama have risen substan-
within the performing arts. New venue
tially relative to the costs of transmission over the
design, improved sound systems, better last thirty years as a result of similar pressures to
lighting, and so on can bring live perfor- those affecting the live arts.
labor. As a result, a gradual erosion in companies to concede lower wage rises,

the relative earnings position of workers reduce labor inputs, change the reper-
in the performing arts is likely, rather toire, and adopt other cost-reducing
than a full transmission of wage rises in strategies such as those mentioned above.
other sectors. These studies have also shown that the
Fourth, there are grounds for hope combined impacts of production adjust-
among performing companies that rising ments, increased demand, and generally
consumer incomes will go some way to- rising levels of unearned revenue have
wards offsetting the negative effects of countered any tendency towards a secu-
ticket price rises forced through cost lar rise in deficits among performing
pressures, despite the somewhat am- companies, suggesting that although the
biguous conclusions drawn earlier as to cost disease will doubtless continue to
the magnitude of the long-run income present the performing arts with difficult
elasticity of demand for the performing problems, it is unlikely to be terminal.
arts. Although an inexorable rightward
movement in the demand curve cannot V. Labor Markets for Artists
be hailed as the unequivocal savior of
the performing arts, at least the shifts Nowhere in cultural economics might
in expenditures and tastes induced by the differences between the arts and
secularly rising incomes and educational other industries be expected to be so
levels within the community are in the marked as in the labor market area, espe-
right direction. cially with regard to the functions of art-
A number of empirical analyses of ists as economic agents. The popular im-
trends in costs and revenues for perform- age of the artist, whether actor, musician,
ing companies have examined aspects of painter, or poet, as a flamboyant bohe-
the cost-disease phenomenon following mian devoted only to realizing a creative
Baumol's and Bowen's original research, dream and oblivious to financial concerns
including studies by Dick Netzer (1978), is a portrayal far removed from the philis-
Peacock, Eddie Shoesmith, and Geoffrey tine economic man who lies at the heart
Millner (1982), Hilda Baumol and Bau- of conventional economic models of labor
mol (1984b), and Samuel -Schwarz (1986). market behavior. Nevertheless, despite
These studies have generally pointed to these apparent differences from the sup-
production-side adjustments by perform- posed norm, routine economic analysis
ing companies over time and have found can be readily applied to study the supply
little evidence of differential rates of in- of artistic labor, the levels of income
flation in the performing arts compared earned by artists, and the distribution
with other sectors of the economy. In of income across the artistic labor force.
fact, Baumol and Baumol (1980) have A prior question, however, is a defini-
noted the relatively slower rate of cost tional one: Who is an artist? For the pur-
increase in the live arts that has occurred poses of theoretical economic analysis, a
during periods of high general inflation categorization based simply on the will-
such as the 1970s. They attribute this ingness or capacity of individuals to sell
outcome, which is consistent with earlier their artistic labor or its immediate prod-
historical periods, to the fact that in in- ucts should provide a sufficient initial
flationary times there is an erosion in definition that could then be further re-
philanthropic support, together with a fined to suit specific contexts. However,
heightened money illusion that restrains for empirical work, the identification of
rises in ticket prices, forcing performing artists or of the arts labor force presents
greater difficulties. Census classifications tain their skills, other creative artists
of "artists" are often at odds with the cat- spending time producing work that is not
egories used by researchers in the field, for sale). For example, in Australia about
a problem compounded by the fact that 70 percent of artists work longer in total
many artists hold more than one job, and than the standard full-time working
their employment outside the arts may week. In the U.S. only 20-25 percent
provide the basis for their census desig- of artists work more or less full-time at
nation. Empirical work based on survey arts work, and it would appear that a ma-
instruments must determine appropriate jority of those working less than full-time
filters to identify artists in a labor market at their chosen profession would prefer
where external screening devices such to spend more time at the arts but are
as formal credentialling are largely ab- deterred from doing so by the need to
sent (Gregory Wassall and Neil Alper earn an income elsewhere.
1985). These characteristics suggest that theo-
ries of labor supply in the arts will need
A. Labor Supply
to account for multiple job-holding by
Acknowledging these difficulties, artists, and in particular for the differ-
what can be said about professional artistsences in their motivations in supplying
as a group and about how they supply work to the arts and nonarts labor mar-
their labor to the market place? Census kets. The primary desire to create art
data indicate that U.S. artists are pre- as a principal occupation must be recog-
dominantly male (57% in 1991) and white nized as the essential driving force be-
(92%)8, and have comprised an increasing hind an artist's labor supply decisions.
proportion of the workforce over the last In this respect artists may be seen as sim-
forty years, rising from 0.73 percent in ilar to academics, researchers, and other
1950 to 1.31 percent in 1990 (National professionals where nonpecuniary mo-
Endowment for the Arts 1992). A distinc- tives relating to work satisfaction exert
tion can be made between the working a significant influence on patterns of time
conditions of performers (actors, musi- allocation. Nevertheless, artists as a
cians, dancers), who mostly are tempo- group differ by virtue of the fact that their
rary employees without job security professional creative work alone is, in the
when they work for money, and creative majority of cases, unlikely to generate a
artists making things for sale (painters, living wage over a reasonable period of
sculptors, craftspeople, writers, compos- time, either because the hourly earnings
ers), who work mainly as independent are too low and/or because remunerative
self-employed contractors. These em- work opportunities are not available.
ployment characteristics mean that the Empirical work on artists' employ-
performing arts is the only area of the ment, based mostly on sample surveys,
industry where labor unions have had a has yielded results consistent with these
significant impact. Overall, about one- observations. For example, Joan Jeffri
quarter of artists are members of a labor (1991), in a survey of over one thousand
union. Artists spend long hours at their U. S. painters, found that pursuit of art
arts work, some part of which may be at the expense of income was widespread;
unpaid (performers practicing to main- of her sample, 70 percent had turned
down lucrative opportunities that were
not artistically fulfilling on more than one
8These proportions are found to be somewhat
smaller in surveys targeted specifically at practicing occasion. At the same time, the need for
professional artists. artists to seek income-supporting work
outside the arts is apparent; Wassall and dicators. But the influence of the various
Alper (1992) reviewed a number of sur- determinants of earnings will be ex-
veys which document the extent of multi- pected to differ between different types
ple job-holding by artists, including their of work.
own 1981 survey of over 3,000 New En- One question to be asked is: if human
gland artists which found only 24 per- capital variables do in fact help to explain
cent of artists holding no nonartistic job. earnings from arts work, what is the
They observed that as artists' careers mechanism by which this influence oper-
solidify as they grow older, more time is ates? In the performing arts, for example,
devoted to arts work, though it is not the amount of training that an artist un-
clear whether this results from greater dergoes might affect the average hourly
career success of existing artists or from earnings she receives, because better
the less successful dropping out. Throsby trained performers can command higher
(1992) estimated labor supply functions fees. Alternatively, or in addition, there
for Australian artists with arts and nonartsmay be a relationship acting through the
wage rates as explanatory variables; this number of hours worked, for example be-
study found evidence of artists supplying cause more established artists can obtain
the nonarts labor market only up to the more engagements.
point where an adequate return was re- Several empirical studies have thrown
ceived to support their primary artistic light on artists' earnings and on the influ-
work, with attention being switched ence of expected income and other vari-
thereafter to supplying primarily the ables arts on career choice. The first and sim-
labor market. plest question has been whether the pop-
ular notion of the penniless artist bears
B. Earnings Functions and Career
any resemblance to reality: are income
Choice
levels in the arts lower than in compara-
If artists' labor supply decisions must ble occupations? Although comparison of
be modeled with due regard to the pecu- artists' incomes with those of the average
liarities of artistic work, it follows that worker using census data may not reveal
the construction of earnings functions a substantial differential, especially if to-
and models of career choice in this area tal (arts and nonarts) income is used as
will also need to account for these fea- the measure of artists' earnings, compari-
tures. To begin with, it will be essential sons with more specific occupational
for earnings functions to distinguish groups do indicate an appreciably lower
clearly between arts and nonarts sources level of mean and median earnings
of income; indeed, within income de- among artists than among other workers
rived from the arts, it may be desirable of similar educational and professional
to differentiate further between income standing. Thus, in 1990 the median
from work as a pure creative artist, such weekly earnings of all full-time wage and
as from acting or selling paintings, and salary earners in the U. S. was $415, and
income from other arts-related work, that of all full-time artists was $499. How-
such as from teaching within an artist's ever, in the same year the median weekly
area of practice. Earnings equations can earnings of all full-time managerial and
be readily postulated along the lines sug- professional workers, a group broadly
gested by human capital theory, with comparable with artists in terms of edu-
education, on-the-job experience, and cational attainment, was $608. While
other factors as explanatory variables these crude comparisons do not control
alongside the usual sociodemographic in- for other systematic differences between
categories, as well as being affected by culated that an additional year of school-

the sorts of definitional problems noted ing would add about $1900 to the in-
earlier, they are at least consistent with comes of managers, professionals and
analyses of survey data which indicate technicians, but only about $1150 to the
that artists suffer a significant earnings incomes of professional artists. He sug-
penalty. It appears that this earnings dif- gested that the abilities required for a
ferential is due in part to lower hourly successful artistic career are not easily
earnings and in part to the fact that as a taught in formal education systems, and
group artists devote less time to arts work that artistic skills contributing to earning
than do other workers to their particular capacity may be more readily acquired
occupations.9 Wassall and Alper (1992) through on-the-job experience.
conclude that artists Fourth, it is readily seen that artists'
incomes are more variable than those of
do not choose to work less; their extensive mul-
tiple jobholding indicates that they work in other groups, both across time for an in-
other jobs to supplement artistic incomes dividual artist, and across artists at a
deemed by them to be inadequate. (p. 191) given point in time. Such an observation
accords with the general view of an artis-
Second, age-earnings profiles are
tic career as being risky. Does this riski-
steeper for artists than for other workers.
ness deter new entrants to the arts labor
Randall K. Filer (1986) suggests that this
market, or does the lure of performing
is caused not so much by differential
in Carnegie Hall, having a work shown
drop-out rates, but rather by high rates
in the Museum of Modern Art, or win-
of employment growth in the arts gener-
ning an Oscar or a Pulitzer Prize, exert
ating the possibility of rents for older,
an irresistible attraction, no matter how
more established artists for whom youn-
minuscule the probabilities of such suc-
ger artists are an imperfect substitute.
cess? The evidence on this question is
Third, the role of education, a mainstay
unclear. Although a number of models
of the human capital model, has been
of career choice in the arts have been
found consistently in the above studies
proposed, sound data to quantify them
to be not as influential in determining
are in short supply. Nevertheless, what-
income levels in the arts as is the case
ever the eventual empirical verdict on
in other occupations. In other words, if
whether or not artists are risk averse,
annual earnings of different types of
there seems no doubt at least that the
workers are regressed against a range of
level of earnings risk in the arts is one
explanatory variables in a human capital
of the factors causing artists to take no-
framework, the schooling variables gen-
narts jobs, where a more stable return
erally turn up with lower and less signifi-
can be expected.
cant coefficients for artists than they do
Fifth, consideration of the skewness in
for other occupational groups. For in-
artists' earnings raises the question of the
stance, using such a model estimated
role of talent in determining success in
from 1980 Census data, Filer (1990) cal-
an artistic career. While it is quite plausi-
9 A further explanation of artists' low incomes could ble to take estimated earnings functions
lie in the fact that some part of their work often and to attribute at least some of the (often
escapes the market process, and is appropriated by
users who do not pay. Although copyright revenue large) unexplained residual to differences
forms a significant component of some artists' in- in talent, such a hypothesis remains un-
comes, there are many others whose creative work testable when no independent measure
remains largely unprotected, despite the growing
volume of national legislation and international agree-
of talent is forthcoming. An alternative
ment covering intellectual property. approach has been to consider how con-
ditions of artistic production, consump- ment might have an interest in stimulat-

tion, and exchange have promoted some ing the output of artists is addressed in
talented individuals to the top of the in- the next section.
come tree. Sherwin Rosen's (1981) "su-
perstar" model construes an artist's reve-
VI. Public Policy Toward the Arts
nue as a convex function of talent; there
is imperfect substitution in consumption Finding a rationale and guiding princi-
between different sellers, because sev- ples for government support of the arts
eral mediocre performances do not sub- was one of the major areas of concern
stitute for one good one. Hence small of the earliest postwar writings in cultural
differences in talent among performers economics, and these issues have contin-
are magnified into large earnings differ- ued to recur in the literature ever since.
entials. Furthermore Rosen sees con- Consideration of these matters can con-
sumption technology in the arts and else- veniently be divided into positive and
where as enabling scale economies in normative aspects.
consumption. These two characteristics
taken together mean that a few talented A. Positive Aspects
persons can command large markets and
the highest returns. The same result can Governments in all democratic coun-
be obtained without reference to dif- tries assist the arts in some way or an-
ferences in talent; Moshe Adler (1985) other, using a variety of instruments in-
suggested that the costs of acquiring cluding: subsidies to companies and
knowledge about a range of performers individuals; direct provision of artistic
prompts consumers to concentrate their goods and services through state-owned
demand on a small number of individuals enterprises; tax concessions to individual
who will thereby be elevated to star- and corporate donors to the arts; tax ex-
dom. '0 emptions to artists and arts organizations;
Finally, some indications for policy regulation, such as local content require-
may be able to be drawn from these sorts ments for television drama; the provision
of analyses. For example, Felton (1980) of information; support for arts education
used estimated labor supply, revenue, and training; and legislation affecting the
and production functions to evaluate the economic rights of artists, for example
most cost-effective means of inducing through copyright laws. Levels of sup-
composers to spend more time at compo- port vary markedly between countries.
sition. She found that patronage through International comparisons of government
commissions, prizes, and grants that expenditures in this field are tricky be-
increased temporary income would be cause of differences in definition of "the
more effective than subsidizing publica- arts" between countries, difficulties in
tion, recording, or performance in bring- defining comparable funding sources,
ing forth the required increase in labor and problems in quantifying indirect
supply. The question of why a govern- aid. Acknowledging these difficulties,
Table 1 assembles data on direct public
expenditure on arts and museums for
10 In a similar vein, Glenn MacDonald (1988) ex-
eight countries for the year 1987.
plains the skewed income distribution among artists
by the presence of large numbers of poorly paid The relatively low level of expenditure
young hopefuls trying to gain a foothold in the mar- in the United States is explained in part
ketplace; for an assessment of all these models in
the context of the market for singers, see Ruth Towse
by the smaller extent of direct provision
(1992). (state ownership) of arts facilities in
TABLE 1
PUBLIC EXPENDITURE ON ARTS AND MUSEUMS, VARIOUS COUNTRIES 1987
Public expenditure on
arts(a) as proportion of Public expenditure on arts(a) per head
All public Central Regional/

expenditure GDP govt. local govt. Total
% % $ per head $ per head $ per head

United States 0.05 0.02 1.7 1.6 3.3
Canada 0.34 0.18 12.1 16.2 28.3
United Kingdom 0.41 0.14 7.4 8.6 16.0
W. Germany 0.79 0.21 0.4 38.7 39.1
France 0.77 0.22 7.2 27.8 35.0
Netherlands 0.45 0.23 16.3 17.2 33.5
Sweden 0.42 0.24 29.2 16.0 45.2
Australia(b) 0.39 0.11 6.0 13.1 19.1
Source: Calculated from data in Policy Studies Institute (1990) and Australia Council (1991).
Notes: (a) Comprising recurrent expenditure on arts and museums; this is essentially a "British" definition of what
is included in the arts, and differs from some American studies (Schuster 1988).
(b) 1988-1989.
America compared with the European cades. Somewhat similar data for the late
countries, and in part by the fact that 1960s painted a similar picture (Scitovsky
the U.S. places by far the greatest reli- 1972). Scitovsky interpreted it as indicat-
ance on voluntary support to the arts ing differences in American and Euro-
through charitable giving. Estimating the pean tastes which would only be altered
public sector component of these latter by education.
resource flows is problematical. Schuster One noteworthy characteristic of Ta-
(1985) estimated that in 1982-83 private ble 1 is the variation between countries
donations to the arts and humanities from in the proportions of support contributed
individual, corporate, and foundation by central and by regional governments.
sources in the U.S. was about four times France and Germany provide the major-
as great as the level of direct government ity of their arts assistance through re-
support, and that the public cost of these gional and local channels, for example,
voluntary donations in terms of taxation whereas Sweden is more centralist. In
revenue forgone was about half of the the U.S., the 1980s have seen a growth
aggregate amount. Applying these pro- in fiscal decentralization across the
portions in broad terms to the data for board, in which arts funding has been
the U.S. in Table 1 suggests that, even caught up. Appropriations for the Na-
after allowance is made for indirect sup- tional Endowment for the Arts, the prin-
port for the arts through the tax system, cipal vehicle for direct central govern-
overall levels of public subvention in the ment financing of the arts, fell by about
U.S. are still likely to come out lower 30 percent in real terms over the decade,
than in the other countries in the table. while appropriations for State arts agen-
This ranking of the U.S. relative to the cies nearly doubled in real terms over
rest of the world has apparently not the same period. The relative incidence
changed greatly over the last few de- of the costs of indirect arts support has
also been shifting away from the center polls in several countries lends some sup-
in recent years. Netzer (1992) sees these port to the proposition that a majority
developments as desirable in terms both of voters approve of government involve-
of the theory of fiscal federalism and the ment in this area, notwithstanding the
theory of public support for cultural ac- occasional outcry when the role of the
tivities. Further, DiMaggio (1991) points artist as social critic creates a tension be-
to the benefits to artists and organizations tween public funding and freedom of ar-
of a coexistence of federal and state grant- tistic expression.
making, through increased flexibility and An additional positive explanation of
a lessening of the costs of wrong deci- government subsidies to the arts is that
sions, as well as a means of risk pooling they represent the outcome of rent-seek-
in times of political vulnerability. ing behavior by individuals and enter-
The basic issue to be considered in the prises in the arts industry. Certainly stud-
positive economics of arts funding is the ies that have sought to uncover the deter-
question of why governments, whether minants of variations in public expendi-
federal, state, or local, have intervened ture on the arts across regional
in the market to the extent indicated in jurisdictions, or the factors influencing
Table 1. What has been the principal mo- voting behavior in referenda on levels
tivation behind these significant levels of arts support, have found evidence of
of government expenditure? A major a demand for private benefit through arts
consideration influencing legislators has subsidies (Withers 1979; Bruce Seaman
undoubtedly been a sense of the appro- 1981; Schneider and Pommerehne
priateness of a government role in sup- 1983b; Throsby 1984). Furthermore, if
porting the cultural life of the commu- an indication of rent-seeking is provided
nity. Countless examples can be drawn by an excess of factor payments in the
from the rhetoric of politicians of all per- arts over the levels that a free market
suasions around the world of the "duty" would provide, then a prima facie case
and "responsibility" of the public sector for the existence of rent-seeking would
in fostering the arts. Such sentiments are appear to be made (William Grampp
consistent with theories of the state aris- 1989). However, the bidding up of factor
ing from outside of neoclassical econom- rewards by self-interested agents in the
ics, or indeed from outside of economics arts is but one of many possible explana-
altogether, but within the conventional tions for observed factor-price differen-
economic paradigm they sit somewhat tials. Such effects would also be seen as
less easily. They might be construed in a result of governments acting on the sort
one of two ways. of perceived mandate described above,
If in fact the community were indiffer- even in the absence of rent-seeking be-
ent or hostile to the arts, the imposition havior. Furthermore, there may be effi-
of government preferences for the arts ciency or other reasons for payments to
through subsidies would be dictatorial factors that exceed private market levels,
or, at best, paternalistic. On the other a consideration which brings us to the
hand, governments may simply be acting normative aspects of these questions.
on a belief that voters share their view
of a proper role for the public sector in
providing support to the arts; if so, and B. Normative Aspects
if this belief were correct, the actions of
governments could be -argued to be A concern for optimal allocation of pri-
broadly in line with individual utilities. vate and public resources within a social-
Occasional ad hoc evidence from opinion welfare-maximizing framework in a free
exchange economy leads inevitably to the ever, suggests that a number of the char-
question: Is there an economic rationale acteristics that might be ascribed to the
in normative terms for spending tax reve- arts as a merit good can actually be ex-
nue in support of the arts, regardless of plained as generalized externalities or so-
what governments actually do? We ex- cial goods. For instance, a belief that the
amine this question initially in the con- arts are socially beneficial when held by
text of a standard competitive model people who do not themselves consume
wherein resource allocation is guided by the arts directly, or an acceptance by
the free and independent choices of sov- some individuals of the desirability of
ereign consumers. The textbook market- others' consumption, can be accounted
failure grounds for government interven- for in this way. In such cases what ap-
tion in such an economy are well known. pears at first sight to be "imposed choice"
Many of these grounds can be applied turns out to be ultimately consistent
to the arts, including possibilities that the with the principle of consumer sover-
arts give rise to external benefits in pro- eignty.
duction and consumption, that there are Nevertheless, this may not be the com-
nonmarket demands for the arts for op- plete story. Are there aspects of a norma-
tion, existence, and bequest values, and tive case for intervention in arts markets
that the arts exhibit public-good charac- that still lie beyond the standard welfare
teristics alongside the private benefits analysis based on rational action in accor-
conferred by individual consumption. Of dance with well-informed individual
course such speculations, if valid, would preferences? Four aspects of this ques-
provide only a prima facie case for correc-tion may be considered. First, the effi-
tive government action. Before such ac- cient operation of market processes re-
tion would be warranted in normative quires fully-informed consumers. If
terms, it would need to be shown that individuals lack the necessary informa-
at the margin the social benefits gained tion on which to base their market
from intervention would outweigh the di- choices, or at a more fundamental level
rect costs involved in comparison to alter- are ignorant of their own welfare, then
native means of achieving the same ends. they may take decisions that are not in
Further, an assurance is required that their own best interests, and corrective
obstacles such as political corruption or action, at the least through provision of
bureaucratic inefficiency in delivery information and education, might be
mechanisms will not prejudice an opti- justified. Although data are lacking, a
mal outcome. plausible intuitive case can be made that
Moving beyond standard efficiency this situation applies in some measure
considerations raises the possibility that to the arts, especially in the light of dis-
the arts might be deemed a merit good cussion in Section II above concerning
in Richard Musgrave's (1959) original the development of tastes for cultural
terms, and that, if so, this would provide goods.
normative grounds for collective action. Second, a scrutiny of the relationship
At first glance, the arts would seem to between preference and action, inter-
fit the "merit want" description rather preted unquestioningly in conventional
closely: society apparently sees the arts welfare analysis as a direct linkage, indi-
as "meritorious," yet people do not de- cates that there may be significant cases
mand them in private markets to the ex- where the observed behavior of individu-
tent that such a view would suggest, pro- als is inconsistent with their underlying
viding a presumptive case for corrective values, for reasons such as mispercep-
intervention. Closer examination, how- tion, weakness of will, or fluctuations in
preferences over time. Such cases of ap- struments, for example by channeling
parent irrationality present a challenge some subsidies to performing firms
to the accepted definition of consumer through consumer vouchers issued to
sovereignty, suggesting that a broader low-income customers, have generally
and more carefully articulated interpreta- been judged ineffective, unworkable, or
tion of consumer sovereignty might be both. " Ultimately the verdict yielded by
warranted (Alan Hamlin 1990). Govern- the standard model must be that any un-
ment action which appears initially to re- toward distributional implications of arts
strict consumer choice might then be assistance should be seen not so much
seen to be normatively consistent with as a reason for modifying support proce-
a broader sovereignty notion. dures but as an added impetus to ensure
Third, it is possible that a traditional that general redistributive policy is oper-
social welfare function that admits only ating to the desired extent.
individual utilities as its arguments may Distributional questions, too, are an
be too restrictive in the context of socially important aspect of the concept of merit
meritorious goods such as the arts. The goods, providing a rationale for in-kind
suggestion of an "augmented" social wel- transfers to the disadvantaged in areas
fare function, where society expresses such as housing and education. The arts
desires that are additional to those of its do not fit comfortably alongside these ex-
members as individuals, has been around amples, because they can scarcely be
for some time. More recently attention construed as a social or economic neces-
has been paid to the specific possibility sity, no matter how convinced artists and
of "irreducibly social goods" (Charles others might be of the central importance
Taylor 1990), that is, goods which containof art in life. Nevertheless a distributional
some element of benefit that cannot ulti- motive from time to time influences the
mately be attributed to some individual. behavior of the managers of performing
In the general discussion of this proposi- companies and art museums, for exam-
tion, the arts can be advanced as a signifi- ple, in their efforts to keep prices down
cant case, but in order to do so the as a means of enabling access to the arts
boundary of conventional economic by all, and not just by the rich.
thinking must be extended to encompass Many economists over the past twenty
ideas of culture and civilization drawn years have put forward and analyzed mar-
from philosophy, aesthetics, and political ket failure, merit, and distributional ar-
and social theory. guments for and against public support
Finally, distributional issues must be for the arts, such that by now there are
addressed. Within the standard welfare few theoretical stones left unturned
economics framework, it is of course gen- within the confines of the competitive
erally assumed that any adverse equity model, and the focus of further enquiry
impacts of measures designed to improve in this area of the field must be primarily
allocative efficiency will be dealt with by empirical. All of the effects noted above
lump-sum transfers. This matter is of are in principle measurable, and it re-
some concern in the arts, because the mains for well-designed research to put
benefits of subsidies to encourage artistic quantitative flesh on the theoretical
activity will almost certainly have a re-
gressive incidence on consumers, though 11 Discussions of vouchers, such as that of Mark
not necessarily on producers. However, Blaug (1976, pp. 140-42), emphasize the difficulties
of targeting such schemes on the "right" recipients;
suggestions for dealing with this problem nevertheless, there is at least one scheme that has
directly through adjustments to policy in- been judged a success (see W. Baumol 1979).
bones. This task should be relatively government subventions. Although these

straightforward in respect to immediate results are consistent with some of the
neighborhood effects such as the specific theoretical propositions mentioned
spillovers in production and consumption above, and indeed could be taken so far
arising, for example, from arts festivals as to suggest that market failure grounds
or from the presence of a dynamic arts for government support for the arts may
sector within a regional economy. How- be empirically more robust than some
ever, studies in this area have tended of the skeptics have supposed, they are
to focus on direct expenditures and their only partial in their coverage, are inevita-
multiplier effects, rather than on genuine bly location- and time-specific, and may
instances of market failure that might not control for all sources of bias affecting
warrant government intervention (Sea- such investigations. They should be seen
man 1987). More generally, the arts can as pointers to further needed research
be seen as a potentially leading sector in this area.
in central city renewal and in urban eco- We noted above that further work on
nomic development. There is scope for the efficiency grounds for public assis-
further research in this area, both con- tance to the arts would be likely to be
ceptually (to specify more clearly the primarily empirical. By contrast, exten-
linkages between the arts, local demand, sion of the standard welfare analysis into
tourist expenditures, and urban growth the broader domains noted earlier offers
patterns, and their implications for pub- rich possibilities for both theoretical as
lic policy) and empirically (to estimate well as empirical advance in its applica-
the magnitudes involved). tion to the arts. Such efforts are likely
But the task of quantifying broader to be more fruitful if they incorporate
public-good benefits of the arts, if they ideas and models drawn from other disci-
exist, has proved more daunting. While plines.
hedonic methods may be applicable at Finally, once the question of whether
local level (David E. Clark and James governments should assist the arts has
R. Kahn 1988), the evaluation of more been resolved, or if an affirmative answer
diffused community demand for the arts to it is taken for granted, the next consid-
as a social good is likely to prove more eration is how might a given volume of
amenable to contingent valuation ap- support best be raised and distributed
proaches. Little work has been under- among competing avenues of expendi-
taken to date, apart from exploratory ture? These issues have of course been
studies such as those of Throsby and central questions of public finance across
Withers (1986) and William Morrison all areas of social policy over the years,
and Edwin West (1986), which have used among which the arts have received some
survey techniques to estimate individual share of attention, especially in regard
willingness to pay for the public-good to the incidence of the costs of support
component of the arts under conditions and the effects of tax policy on resources
controlling for free-rider and informa- available to major cultural institutions
tional biases. These studies have indi- (Alan L. Feld, Michael O'Hare, and
cated that respondents not only perceive Schuster 1983; Charles T. Clotfelter
benefits such as definition of national 1991). The distribution of public support
identity and social criticism arising from among competing claimants, whether
the arts, but also are willing to pay for disbursed as direct government grants or
these benefits out of taxation at levels through tax revenues forgone, comprises
that are somewhat higher than existing the principal dimension of a govern-
ment's arts policy. Such a policy is likely economics, labor market economics, and
to have multiple objectives, including other areas.
the expansion of access to the arts, the Second, an essential element in future
expression of national or regional cultural work will be the provision of better data.
identity, the promotion of excellence, At several points in this article attention
the encouragement of regional growth, has been drawn to the serious constraint
and so on. For this and other reasons, imposed on research in cultural econom-
quantitative evaluation of the "productiv- ics by the lack of comprehensive statistics
ity" of different types of support presents on the arts industry or its subsectors.
difficult theoretical and empirical prob- Once-off sources such as the Ford Foun-
lems, most of which have yet to be ad- dation data tape for the performing arts
dressed. Furthermore, there are mani- (1974) have been wrung dry and have
fest social and political dimensions to become obsolete. Census data often can-
these questions that suggest they should not be provided on a sufficiently detailed
not be studied in isolation from their in- definitional basis to be useful for re-
stitutional context. search. Specialist arts authorities such as
the NEA and the state arts agencies have
VII. Conclusion suffered budget cuts which tend to fall
more heavily on apparently expendable
Several reviewers of the progress of areas such as data gathering than on giv-
cultural economics over the years have ing grants to artists. The U.S. experience
observed that many writers, including in these respects is mirrored to a greater
themselves, have begun their books or or lesser degree in most other countries.
papers with an apology for presuming Cultural economists will need to pay
that economics might have anything use- greater attention to the collection of new
ful to say about art. In the light of the data in future if they wish their work to
wide range of imaginative and resource- be taken seriously by other researchers
ful work in applying economics to prob- or to be useful to policy makers, organiza-
lems in the arts that we have drawn at- tions or individuals working in the field.
tention to in this article, henceforward Finally, while theoretical and empiri-
such disclaimers may no longer be cal developments within the conven-
thought necessary. Three lines of future tional paradigms of economics will
development in cultural economics can doubtless continue, the arts and culture
be foreseen. do also challenge tradition-bound econo-
First, despite progress to date, there mists to focus their eyes on a wider hori-
are, as we have noted throughout this zon. The very breadth of the subject area
paper, numerous nontrivial theoretical of the arts, embracing as it does a range
and empirical problems yet to be ex- of issues in philosophy, aesthetics, his-
plored in this area that are susceptible tory, sociology, politics, and many other
to the powerful tools of positive and nor- disciplines, would appear to make cul-
mative economic analysis. Interest is tural economics a natural area for eclectic
likely to continue to arise particularly theoretical and methodological advance.
from existing fields of economic enquiry Indeed, economists in this area have re-
where applications to the arts and culture cently been grappling with ideas from
occur as a special case, such as in the cognitive psychology (Frey 1991), aes-
theory of consumer behavior, the eco- thetics (Gianfranco Mossetto 1992) and
nomics of nonprofit enterprise, the eco- other fields, work that is illustrative of
nomics of charitable giving, urban the scope for a broader methodological
foundation in this field. While efforts Relations, Australian National U., 1990.
CLARK, DAVID E. AND KAHN, JAMES R. "The Social
such as these of necessity remain highly
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The Production and Consumption of The Arts

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American Economic Association

The Production and Consumption of the Arts: A View of Cultural Economics

The Production and Consumption

I am grateful to Will Baumol, Tom Bradshaw, Tony Bryant, Graham

I. Introduction Likewise, support for the arts and cul-

gaged the attention of contemporary mol and William Bowen, Performing

most demand studies in the performing as an output variable to the number of

A look at the performing arts industry

While each of these explanations can tions, or from government subvention,

UY!X + py Y + P(Y) + hyy = cy Much scope remains for further theo-

A model which gave primacy to quality goals of personal advancement rather

rise to one of the longest-running debates mances to larger immediate audiences.

labor. As a result, a gradual erosion in companies to concede lower wage rises,

categories, as well as being affected by culated that an additional year of school-

ditions of artistic production, consump- ment might have an interest in stimulat-

PUBLIC EXPENDITURE ON ARTS AND MUSEUMS, VARIOUS COUNTRIES 1987

All public Central Regional/

% % $ per head $ per head $ per head

bones. This task should be relatively government subventions. Although these

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