ARTS AND CULTURE

Arts And Culture



Arts And Culture

Abstract

In this paper we will discuss why there might be market failure preventing optimal choices of arts and culture in the absence of intervention. Furthermore the relative merits of spending taxpayers' money on giving free tickets to students to attend theatres, operas and art galleries versus lowering the price of these events by directly subsidising performance.

Introduction

Throughout most of our shared history, the arts have been subsidized by Medici princes, Austrian emperors, Russian czars, English parliaments, French republics, and even the free-market-oriented United States. Still, the question, Should the government subsidize the arts? strikes economists as eminently worthy of debate. The dominant tradition among Western economists holds that given the existing distribution of income, competitive markets in most circumstances can be relied on to satisfy consumer preferences optimally.

The ground principle for this is that markets are not competitive or that they display other imperfections. These are the efficiency arguments, so called because some form of “market failure”-a structural or incentive shortcoming- has led to an inefficient allocation of resources, which intervention must correct. Moreover, economists are in substantial agreement about which imperfections justify what sorts of government intervention. Debate therefore focuses not on the theoretical arguments for intervention, but on whether the art and culture industries, in fact, operate under the justifying conditions.

Market efficiency and market failure

When markets work efficiently, we appropriately accept the market outcome. Why not leave arts output to be settled in the marketplace alongside the output of running shoes, television sets, and tennis rackets? A possible answer is that market failure provides an argument for public intervention. The principal causes of market failure are monopoly, externalities, public goods, declining cost industries, and lack of information. We examine them in that order and ask in each case whether they seem to operate in the fields of art and culture. If they do, that argues strongly in favor of corrective public policy.

Structural failure (monopoly). Monopoly is a cause of market failure because the monopolist is in a position to restrict output and earn extra profits by raising prices above the marginal cost level that would prevail under competition. Because outputstops short of the level at which marginal cost equals price (the theoretical optimal efficiency criterion), some consumers are denied goods for which they would pay more than the incremental cost of production. Such an outcome is economically inefficient. Nearly all governments undertake some form of monopoly regulation or other intervention. As it happens, arts institutions frequently operate as monopolists within their local market. Rarely is there more than one major art museum, professional symphony orchestra, opera, or ballet company in a city. This is not usually treated as a source of market failure, however, because most arts institutions are organized on a not-for-profit basis. If they charge prices above marginal cost, it is not because they are trying to maximize profits, but because they operate under conditions of decreasing cost, so that marginal cost is always below the average total cost ...