Cultural Economics: Art, Heritage, and Creative Industries
The economics of the arts and literature, or cultural economics, is a branch of economics that studies the creation, distribution, and consumption of works of art, literature, and similar creative and/or cultural products. For a long time, the concept of the “arts” was confined to visual arts (e.g., painting) and performing arts (music, theatre, dance) in the Anglo-Saxon tradition. Usage has widened since the beginning of the 1980s with the study of the cultural industry (cinema, television programs, book and periodical publishing, and music publishing) and the economy of cultural institutions (museums, libraries, historic buildings). The field is coded as JEL: Z11 in the Journal of Economic Literature classification system used for article searches.
Cultural economics is concerned with the arts in a broad sense. The goods considered have creative content, but that is not enough to qualify as a cultural good. Designer goods such as clothes and drapes are not usually considered to be works of art or culture. Cultural goods are those with a value determined by symbolic content rather than physical characteristics. (For further considerations, see also Cultural Institutions Studies). Economic thinking has been applied in ever more areas in the last few decades, including pollution, corruption, and education.
Works of art and culture have a specific quality, which is their uniqueness. While other economic goods, such as crude oil or wheat, are generic, interchangeable commodities (given a specific grade of the product), there is only one example of a famous painting such as the Mona Lisa, and only one example of Rodin’s well-known sculpture The Thinker. While copies or reproductions can be made of these works of art, and while many inexpensive posters of the Mona Lisa and small factory-made replicas of The Thinker are sold, neither full-size copies nor inexpensive reproductions are viewed as substitutes for the real artworks, in the way that a consumer views a pound of Grade A sugar from Cuba as a fully equivalent substitute for a pound of Grade A sugar from the United States or the Dominican Republic. As there is no equivalent item or substitute for these famous works of art, classical economist Adam Smith held it was impossible to value them.
Alfred Marshall noted that the demand for a certain kind of cultural good can depend on its consumption: The more you have listened to a particular kind of music, the more you appreciate it. In his economic framework, these goods do not have the usual decreasing marginal utility. Key academic works in cultural economics include those of Baumol and Bowen (Performing Arts, The Economic Dilemma, 1966), of Gary Becker on addictive goods, and of Alan Peacock (public choice). This summary has been divided into sections on the economic study of the performing arts, on the market of individual pieces of art, the art market in cultural industries, the economics of cultural heritage, and the labor market in the art sector.
The Art Market
Two segments of the market in the visual arts can be distinguished: works of art that are familiar and have a history, and contemporary works that are more easily influenced by fashion and new discoveries. Both markets, however, are oligopolistic, i.e., there are limited numbers of sellers and buyers (oligopsony). Two central questions on the working of the markets are: How are prices determined, and what is the return on artworks, compared to the return on financial assets?
Cultural Industries
Some famous artworks such as the Mona Lisa painting are not reproducible (at least in the sense of creating another copy that would be seen as equivalent in value), but there are many cultural goods whose value does not depend on a single, individual copy. Books, recordings, and movies get some of their value from the existence of many copies of the original. These are the products of major cultural industries, which are the book industry, the music industry, and the film industry. These markets are characterized by:
- Uncertainty of value: The demand for a good (market success) is hard to predict. For example, with movies, even if a film’s plot, themes, and selection of actors have been extensively tested using focus groups and polls, and even if the movie uses popular A-list actors, this film may still be a box office bomb (e.g., Gigli, a 2003 American romantic comedy starring Ben Affleck and Jennifer Lopez). On the other hand, a low-budget film by an unknown director and an unknown cast, such as The Blair Witch Project, can surprise the industry by being a major hit. This uncertainty is a characteristic of an experience good such as films, TV shows, musical theatre shows, and music concerts.
- Infinite variety: You can differentiate between regular consumer products, e.g. cars, on the basis of their characteristics. For example, a hatchback can be purchased from a number of manufacturers with a set list of options (e.g., automatic transmission, standard transmission, convertible, etc.), with the different options requiring different charges. Many general products allow classification on a relatively small number of such characteristics. Cultural goods, however, have a very high number of characteristics, which, on top of that, often are subjective. For example, an early 1990s band with loud, distorted electric guitar could be considered to be grunge, punk, heavy metal music, or alternative rock by different music critics. This makes cultural products hard to compare.
- High concentration in the products which are traded or sold: A major part of the sales of cultural goods is concentrated in a very small number of bestsellers (e.g., with books), blockbusters (movies), or hit singles (pop music). In other words, the market for such cultural goods operates as a winner-take-all market.
The important cultural industries tend to have an oligopolistic market structure. The market is dominated by a few major companies, with the rest of the market consisting of many small companies. The latter may act as a filter or as “gatekeepers” for the artistic supply. A small company with a successful artist or good quality roster can be bought by one of the major companies. Big conglomerates, pooling TV and film production, have existed for decades. The 1990s have seen some mergers extending beyond the industry as such, and mergers of hardware producers with content providers. Anticipated gains from synergy and market power have not been realized, and from the early 2000s, there has been a trend towards organization along sector lines.
Economics of Cultural Heritage
Cultural heritage is reflected in goods and real estate. Management and regulation of museums has come under study in this area.
Museum Economics
Museums, which have a conservatory role and provide exhibitions to the general public, can be commercial or on a non-profit base. In the second case, as they provide a public good, they pose the problems related to these goods: should they be self-financing, or be subsidized? One of the specific issues is the imbalance between the huge value of the collections in museums and their budgets. Also, they are often located in places (city centers) where the cost of land is high, which limits their expansion possibilities. American museums exhibit only about half of their collection. Some museums in Europe, like the Pompidou Centre in France, show less than 5 percent of their collection. Apart from providing exhibitions, museums get proceeds from derived products, like catalogs and reproductions. They also produce at a more intangible level: They make collections. Out of so many pieces in the public domain, they make a selection based on their expertise, thus adding value to the mere existence of the items.
Heritage Buildings
Many countries have systems that protect historically significant buildings and structures. These are buildings or other structures that are deemed to have cultural importance or which are deemed to have heritage value. Owners get tax deductions or subsidies for restoration, in return for which they accept restrictions on modifications to the buildings or provide public access. Buildings that are often classified as heritage buildings include former or current Parliament buildings, cathedrals, courthouses, houses built in a recognized historical style, and even fairly regular houses if the house was formerly the home of a famous politician, artist, or inventor. Buildings with heritage status cannot typically be demolished. Depending on the nature of the heritage restrictions, the current owner may or may not be allowed to modify the outside or inside of the building. Such a system poses the same choice problems as museums do. There has been little study of this issue.