Advanced Economics of Arts and Culture Summary

Bieke van Nes - 426520


Advanced Economics Summary – Exam November 1st, 2016
Glossary
 Cultural value, economic value
 Capital (human, social, intellectual, cultural)
 Taste formation
 Intermediaries
 Intrinsic / extrinsic value
 Utility
 Consumer preference
 Income elasticities
 Experience goods
 Merit goods / public goods
 Economic impact studies (EIS)
 Contingent valuation method (willingness to pay)
 Principal-agent problems
 Supplier-induced demand
 Crowding-out / crowding-in
 Performance indicators
CE studies the arts and culture using economic analysis:
• CE uses economic theory to analyze problems.
• CE uses empirical evidence in analysis.
• CE analyses the production and consumption of cultural goods and services.
• It works along related disciplines (e.g. sociology of culture, arts management,
psychology, cultural anthropology).
• It shares similarities to the study of health and education.
Cultural Economics: study of the arts and culture using economic analysis
 Studies the reaction of people/organizations to incentives and disincentives
(coordinated through the institution of marketplace sold to people who are willing to pay
(WTP))
 Use of positive analysis, rather than normative analysis
Mezzo approach: analyzing transition between macro and micro approach
Why support the arts and culture (reasons also for governments)?
• Because they are public goods (non rival, non excludable)
• Because they are merit goods, produced/consumed at inefficient levels
• Because they produce externalities, social benefits aren’t known
• Because all should have access (equity to producers/consumers, present/future,
dependence on taste formation/addiction)
• Because of market failure
• Because of collective consumption, non-rival, non-excludable
• Because of Baumol’s cost disease, labour costs unsustainable
• Because of uncertainty, creativity as risky business
• Because they’re often experience goods, dependent on taste formation
• Because of equity, availability (not accessibility)

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, Bieke van Nes - 426520


How should the arts and culture be supported?
• Public intervention (subsidy direct/indirect, regulations)
• Private
• Public / private collaboration (Who owns art? Owns the object or the access? Who
is responsible for its sustainable care?)
• Evidence-based policy to inform decision making
What should be supported? Who should define what to support?
• Based on sound data collected (What statistics? What classification? What
metric?)
• Defined by the experts
• Informed by evidence-based policy
• Based on efficiency indicators (CBA, cost benefit analysis)
• Based on public opinion (CVM, contingent valuation method)
Public support
Culture and creativity have public good characteristics that improve welfare (sense of
wellbeing or satisfaction with one’s physical and mental state and quality of life)
Individuals gain utility from cultural goods and services. But there can be some
challenges in the market:
• Economic value and cultural value may not harmonize
• Information problems (lack of / asymmetric)
• Access to culture may not be equal to all
• Market failure
Economic value:
• Exchange value
• Utility value / value in the use of a commodity (good)
Cultural value:
• Aesthetic value (beauty, harmony, form)
• Spiritual value (understanding, enlightenment, insight)
• Social value (identity, place)
• Historical value (context, documentation value)
• Symbolic value (meaning)
• Authenticity value (originality)
• Option value (availability)
• Existential value (history, authenticity)
• Heritage value (identity, place)
• Legacy/bequest value (future generations)
• Prestige value (association)
• Creativity value (inspirational)
Why do governments support the arts?
When there is market failure, the government intervenes to correct for efficiency  there
is a trade off between efficiency and equity, leaving with second-best policies


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