JEL Classification Code

Z1

1.1 Introduction

The introductory chapter to the first volume of the Handbook of the Economics of Art and Culture gave an account of the historical evolution of the discipline known as cultural economics, now more appropriately referred to as the economics of art and culture. It was pointed out there that from its initial (and continuing) preoccupation with the economics of the arts, this area of economic theory and analysis has grown considerably in recent years, widening its focus to embrace a range of issues in the broadly defined cultural arena. These developments had already been noted by Mark Blaug in one of the surveys of the field cited in that introductory chapter. Whilst acknowledging that most of the literature in cultural economics remained concerned with ‘the narrower conception … [of] the economics of the performing, visual and literary arts’, Blaug commented on the expansion of the field, observing that it had been widened to ‘embrace the “economics of culture”, turning it from a sub-discipline of economics into a sub-discipline of anthropology’ (Blaug, 2001, p. 123).

Since the publication of the first volume of this Handbook in 2006, these trends have continued, persuading us that this second volume should extend its coverage to reflect developments in the field.¹ At the same time we have to remain aware that much innovative research in the economics of art and culture continues to be devoted to economic analysis of all aspects of production, distribution, and consumption in the creative arts, trade in cultural goods, cultural heritage, cultural policy issues, and so on. Thus, in compiling this second volume we have endeavored to strike a balance between the half-century of tradition in cultural economics and the research profession’s more recent interest in issues lying beyond the disciplinary boundaries set by conventional economic theory and analysis. Although most of our contributors are economists, several chapters are written by scholars from other disciplines: psychology, aesthetic theory, literary studies, law, and anthropology. We regard interdisciplinary enquiry as a bridge-building process; accordingly, we hope that the contents of this volume will be of interest not only to economists, but also to outsiders who may be surprised to discover that economics has something to say about issues in the arts and culture with which they are concerned.

In this introductory chapter we provide an overview of the volume, which we have assembled under five headings. The first group deals with issues of value and valuation—how to conceptualize the value of various cultural phenomena and how to measure it. We include three chapters in the second group that approach the economics of art from the demand side. The third category covers what can be loosely referred to as the creative or cultural industries, referring particularly to the operations of enterprises in the performing arts. Cultural diversity—a relatively recent area of interest in the field—provides the theme for the fourth group of chapters, several of which discuss relationships between diversity and international trade in cultural goods and services. Finally, under the heading ‘broader cultural issues’ we include contributions that draw significantly on anthropology and related areas. This chapter then concludes with some observations about further research.

1.2 Value and Evaluation in Art and Culture

Questions of value recur throughout the social sciences and humanities, not least in economics. The six chapters in this group approach the creation and/or reception of value for artistic and cultural goods and services from several different disciplinary standpoints. The first chapter in the group begins at the beginning; art, like science, necessarily starts with creation—a matter that should be of concern to cultural economists, who might find it useful to know something about the origins of what they study. The aspect of creative work that Dean Simonton deals with in Chapter 2 stands at the top end of artistic achievement, namely the emergence of genius. His psychological treatment is primarily theoretical although the findings described are based on impressive datasets. Like other contributors in this group he is concerned with measurement issues: what is the extent of consensus about genius and what is the degree of temporal stability? Factors contributing to the development of genius and the personal attributes of eminent artists differ between writers, composers, and visual artists—the three most prominent domains of artistic achievement. It is not only internal factors that foster the emergence of outstanding artists, it is also the sociocultural context in which they work, including the political and economic milieu.

Once an artwork is created, whether by a genius or by a lesser mortal, the question of value switches from its creation to its reception by the consumer. The next three chapters in this first group deal with the issue of the interpretation of the value of art, from the viewpoints of psychology, economics, and philosophy, respectively. Paul Locher, an experimental psychologist, looks in Chapter 3 at the factors affecting the aesthetic experience of visual art: how is ‘beauty’ perceived? He uses experimental aesthetics to study forms of behavior that center round observers’ interactions with works of art and other aesthetic phenomena using a variety of research techniques and controlled observation. Locher surveys the diversity of methodologies used to study aesthetic experience in several visual art forms, including painting, film, photography, sculpture, cuisine, design products, and dance. The methods he discusses bear some similarities to experimental approaches that have become common in empirical studies in behavioral economics.

The concept of cultural value as a means of encapsulating the various dimensions of the value of cultural goods and services has been discussed in several fields over the past 20 years.² Whether the term is applied to visual art, music, cultural heritage, movies, or literature, the term is acknowledged to be multifaceted—a characteristic that has stimulated efforts to deconstruct it into some more directly observable components. The next two chapters in this group address this issue. In Chapter 4, David Throsby and Anita Zednik discuss the challenge that this concept poses for economic theory and analysis. In conventional economics, a consumer whose demand for, say, a work of art is motivated by his or her perceptions of its aesthetic or symbolic qualities will express the strength of those perceptions in his or her willingness to pay for the work. In other words, standard economic theory assumes that a financial assessment will capture all sources of value attributable to the work, rendering the need for a separate concept of cultural value redundant. These authors use data from a survey of people’s attitudes to paintings to demonstrate that some dimensions to the paintings’ cultural value that people regard as important do not influence their economic valuation of the works, suggesting that a distinct category of cultural value does indeed exist alongside the economic value that is measured by the tools of economic analysis. They argue that if this result were found to be valid more widely, its implications could ramify into a range of policy areas, including support for the arts, international trade in cultural goods, heritage policy, and so on.

The disaggregation of cultural value into its various dimensions that is put forward by Throsby and Zednik from the viewpoint of economics is mirrored in spirit if not in detail in the multiple components in the value of music that are proposed from a philosophical perspective by Jerrold Levinson in Chapter 5. Levinson identifies firstly a ‘pure’ musical value, which he sees as a type of artistic value that is close to but not identical with aesthetic value. Beyond that he acknowledges a wider collection of values attributable to music, including economic, social, entertainment, and therapeutic values. He concludes that above all music is ‘a kind of companion to life itself, without which we would often feel more isolated’.

Judgments as to the value of artworks are implicated in the award of the sorts of prizes that have continued to proliferate across all fields of the arts. Chapter 6, by James English, is a follow-up to his 2005 book on ‘one of the great untold stories of cultural life’ concerned with the enormous flurry of prizes and awards in literature and the arts in general.³ These awards have often been shown to be distributed in a quite biased way,⁴ yet they have significant commercial consequences. Since there is a great deal of data, the award of prizes has been extensively analyzed for movies; prizes cause an increase in box office revenue, but box office income that has been realized before awards are distributed may also influence the choices of judges who are responsible for selecting winners.⁵ Although English is very critical of the awards industry as a whole, he nevertheless concludes with a certain amount of optimism: ‘The messy work of transvaluation and exchange that we accomplish through prizes is not to be understood as a threat to culture, but as the very means of its production—the vehicle of emergence for that special composite form of value that distinguishes the work of art’.

The final chapter in this group returns us to the hard-headed world of empirical methods in economic analysis. In Chapter 7, Ken Willis provides a comprehensive review of the application of stated preference methods to the valuation of the non-market values of cultural heritage—an area of cultural economics that has benefitted greatly from methodological advances made in environmental economics.⁶ He pays particular attention to the use of discrete choice models of various sorts, with reference to issues such as the underlying random utility theory, experimental design, accounting for interaction effects, controlling for choice complexity, and identifying differences between willingness to pay and willingness to accept loss. The technical sophistication of methods for measuring the non-market economic value of cultural goods and services stands in sharp contrast to the rudimentary methods that have been developed so far for the assessment of cultural value.

1.3 Demand, Consumption, and Investment

The three chapters in this section look at influences driving the demand for cultural goods in the marketplace. The chapter by David Walls on bestsellers and blockbusters in the movie, music, and book industries (Chapter 8) paints a very different picture of pathways to success in the arts from that told in Chapter 6 dealing with prizes. In the latter chapter, experts decide on who is to be rewarded, usually with little money but a lot of glory. In the world portrayed by Walls it is money that rules, associated with the superstar or winner-take-all phenomenon⁷ that makes some movies blockbusters or some books bestsellers. The principal focus of this chapter is on the statistical models used to quantify the distribution of success across competing titles; the chapter cites a wide range of applications that bring high-powered econometric methodologies to bear on the rich datasets that are available relating to the three cultural products covered.⁸ Walls’ suggestions for future research include a proposal for further investigation of the applicability of Anderson’s (2006) long-tail theory: are these markets characterized by long tails, heavy tails, steep tails, or tails of yet another sort?

Economists have long been interested in the demand for art; not surprisingly, most empirical studies in this area to date have been concerned with the traditional modes of artistic and cultural consumption such as attendances at performing arts events, visits to museums and galleries, purchases of books and music, and so on.⁹ Yet the landscape of cultural consumption has changed radically in the last decade or so as a result of the advent of new information and communication technologies, the rise of the Internet, and the spread of social media. An ever-increasing amount of creative material with cultural content is being produced and distributed using new technologies, and consumers are receiving their cultural products and experiences by very different means from those they utilized in the past. In Chapter 9, Jason Potts surveys the ways in which new technologies affect cultural consumption. He notes that technological change lowers the costs of cultural consumption, leading to a range of substitution effects and/or increases in demand. The variety of cultural products on offer in the marketplace is significantly expanded by technological change and new opportunities are opened up for consumers to become co-creators of cultural content.

A particular aspect of the demand for art that has received a lot of attention in the literature has been the demand for paintings, art objects, and other collectibles that may not only provide the buyer with enjoyable consumption experiences, but also act as a store of the owner’s wealth that may appreciate in value over time. This characteristic of art objects enables a distinction to be drawn between the consumption and investment demand for art. Benjamin Mandel investigates this distinction in Chapter 10 in a somewhat novel way, by using international trade data to determine whether the services provided by traded visual art more closely resemble consumption or investment service flows. By reference to the permanent income hypothesis, he is able to use cross-country trade data to show that changes in the permanent component of income are strongly correlated with international shipments of art, whereas art demand does not appear to respond to temporary income shocks. These observations support the proposition that international demand for visual art is primarily driven by consumption rather than investment motives.

1.4 Innovation and Technological Change

The four chapters in this group reflect in one way or another the recent rise in interest in aspects of industrial organization and firm behavior in the creative or cultural industries.¹⁰ Some part of this interest arises from the impact of new technologies on these industries, processes leading to changes in business models for cultural enterprises, and structural adjustment across the entire supply chain. The first of these chapters deals with the concept of innovation as it applies particularly to firms in the performing arts. In Chapter 11, Xavier Castañer refers to programming decisions by such firms, where innovation may mean the scheduling of new work, or work that is new to the organization, or work that is being performed in a new way, and so on. He surveys research in this area by sociologists, who have focused on internal drivers of innovation such as the characteristics of the firm’s managers, and by economists, who have taken a more market-oriented approach.

For cultural organizations to be able to program new works, or for consumers to be able to access new creative products in the marketplace, artists need to produce new works on a regular basis. Joel Waldfogel’s contribution on digitization, copyright, and the flow of new music products in Chapter 12 goes against the common belief shared by much of the literature on copyright protection and by the three major global music corporations—Sony, Universal, and Warner, which represent more than 71% of the music market; this is the belief that the new forms of musical sharing, as well as piracy, represent a threat to demand for paid-for music, but more importantly to the creativity of musicians, who are no longer protected by copyright. Waldfogel argues that other innovations have simultaneously reduced the costs of producing, promoting, and distributing music, so that a large number of independent record labels have flourished and young creators may even turn out to be better off than they were previously, since consumers are now able to discover and test a much wider range of music than before. Waldfogel concludes that although changing technology has weakened copyright protection, it is unclear on balance how the various impacts of such change will affect the flow of new music products.

The next chapter in this group turns to pricing behavior in the concert industry, where each live concert can be considered a unique cultural event. Pascal Courty and Mario Pagliero suggest in Chapter 13 that ‘Artists are celebrities who often rely on their public image to sell their art’. Some of them, Bruce Springsteen in particular, have never charged as much as they could for their tickets. Many suppliers are songwriters or composers and seem to act more as creators who see some sort of higher meaning in their music than as profit-maximizing entrepreneurs. The other side of the market (i.e. concert-goers) are fans who are loyal to their band. The price charged by each band is therefore not always a (local) monopoly price, but a price that reflects a ‘sincere understanding of, and commitment to, the art’. The chapter analyzes a database covering 20000 concerts given between 1992 and 2005 by 100 important artists. It investigates whether artists price-discriminate between tours, between cities in which they tour, and/or between seat categories in concert halls. The authors conclude nicely that not all artists are greedy; some do also behave in a pro-social manner.

A cultural industry of particular interest to economists is the media industry, where cultural messages are conveyed via television, radio, newspapers, or the Internet. In Chapter 14, Gillian Doyle discusses the dangers to the diversity of media voices that accompany increased concentration of ownership in the media industry generated at least in part by changing technologies. Media pluralism is seen as an important guarantee that ensures the continued existence of a diversity of political, social, and cultural viewpoints being represented in media output across a range of platforms. However, the quest for economic efficiencies in a production sector characterized by substantial opportunities for economies of scale and scope has driven an era of consolidation and cross-platform expansion by established and emerging media players. The tensions set up between conflicting sociocultural concerns, on the one hand, and economic and industrial policy priorities, on the other, have presented regulators with difficult and complex challenges. Doyle illustrates these concerns by reference to a specific example of a major media merger that was proposed in the United Kingdom in 2010.

1.5 Trade, Development, and Cultural Diversity

In October 2001, shortly after the 9/11 terrorist attacks in the United States, the UN Educational, Scientific, and Cultural Organization (UNESCO) adopted a Universal Declaration on Cultural Diversity. Four years later the Declaration was given a formal incarnation as an international standard-setting instrument in the form of the UN Convention on the Protection and Promotion of the Diversity of Cultural Expressions, or the ‘2005 Cultural Diversity Convention’ for short. More than 120 countries are now signatories to this treaty and are bound by its provisions relating amongst other things to a recognition that cultural goods and services should be valued in more than simply commercial terms, being conveyors of cultural content that has unique value in its own right. The United States, which is not a party to the Convention, has continued to maintain that this provision allows countries to take measures to protect their cultural industries, and hence acts as a restraint on international trade in cultural goods and services, particularly in the audiovisual sector. Thus, the seemingly innocuous matter of cultural diversity becomes implicated directly in a range of policy arenas dealing with trade, intellectual property, and economic development.

The first two chapters in this section are written from the perspective of international law. In Chapter 15, Lelio Iapadre provides an overview of theoretical contributions to an understanding of the links between trade and culture. It is widely believed that international economic integration can lead to cultural homogenization, such that under certain conditions and with specific qualifications, some forms of so-called efficient protection of the cultural sector may increase economic welfare. In other cases, free trade remains the optimal policy even if it entails some loss of cultural diversity. Iapadre discusses the options open to the international community to bring about some improvement in the governance of cultural trade. He argues that although bilateral and regional trade agreements continue to proliferate, a multilateral solution is needed to the trade versus culture controversy. He does not regard the 2005 UNESCO Convention as providing such a solution; rather, he suggests that a workable balance between the different positions can only be found by improving the regime administered by the World Trade Organization (WTO).

The question as to whether or not the WTO system is in conflict with the mechanisms for protecting cultural diversity as embodied in the 2005 Cultural Diversity Convention is a matter taken up in Chapter 16 by Fiona Macmillan. She looks particularly at the effects on cultural diversity of the international copyright system, which is connected with international trade via the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). She finds that copyright law, together with behavior in the global market for cultural goods and services, has acted as a fetter on cultural diversity and cultural self-determination. Macmillan argues that these fettering effects may have been exacerbated by other WTO agreements.

A different approach to trade and cultural diversity is taken by Alberto Bisin and Thierry Verdier in their Chapter 17. They discuss the channels and dynamics of cultural transmission in a world characterized by the ever-increasing extent of globalization. Although globalization of culture can lead to efficiency gains as noted in earlier chapters, it also crowds out local goods, and may generate a loss of cultural identity and disenfranchise citizens. The authors present some recent formal economic models of cultural transmission and cultural evolution, showing how these models can be embedded into standard economic frameworks to analyze the linkages between globalization and cultural diversity.

The next two chapters turn our attention towards some further economic ramifications of diversity. Chapter 18 on cultural diversity, conflict, and economic development by Jose Garcia Montalvo and Marta Reynal-Querol and Chapter 19 on linguistic diversity by Victor Ginsburgh and Shlomo Weber are very much linked, since culture and language are very strongly intertwined. Both chapters tackle similar questions, namely whether cultural and/or linguistic diversity (or fractionalization) are ‘good’ or ‘bad’; the authors ask whether cultural or linguistic diversity is likely to generate conflict and hamper economic growth and political stability or whether it can on the contrary induce more creativity. Since Greenberg’s (1956) pioneering paper, indices used to measure diversity often take into account the population sizes of the various groups and, in the absence of other comprehensive aggregators, linguistic distances among these groups. They boil down to computing the probability that two members of the population chosen at random will belong to the same group or have at least one language in common. Montalvo and Reynal-Querol are at the origin of an index of polarization that puts more emphasis on the tails of the distribution of the population sizes of the groups. Indeed, this index is often more successful than diversity indices in explaining conflicts and their duration, as is shown by several case studies on growth, public goods, trust, and cooperation.

In the following chapter, Ginsburgh and Weber spend some time defining the other indices and the way they can be constructed, emphasizing the notion and computation of linguistic distances. They also present some case studies concerning the influence of linguistic distances on trade, migrations, and literary translations. Finally, the authors discuss the too-frequent reaction by politicians to linguistic diversity that consists in standardizing (e.g., teaching only in one language in the various regions of a country) that may lead to linguistic disenfranchisement. The chapter shows that the balance between diversity and disenfranchisement may be difficult to strike.

1.6 Broader Cultural Issues

The final group of chapters in this volume contains contributions dealing with issues that are obviously deeply entrenched in most cultures—and this is what gives them their anthropological flavor. These chapters show how these issues are interwoven with and can have an effect on economic, sociological, or legal outcomes.

In Chapter 20, Shalom Schwartz proposes a new way to study the distances between the cultures of national groups. Cultural distances are obviously more encompassing than the linguistic distances discussed in Chapter 19. Schwartz introduces new dimensions that he calls ‘cultural value orientations’, and produces distances for eight distinct world cultural regions that reflect the influence of geographic proximity, history, language, and other factors. He examines associations between culture, measured by the value orientations, and a variety of variables of economic significance, including socioeconomic factors, corruption, competitiveness, and democracy. The chapter analyzes how cultural distances affect the flow of investment around the world. Schwartz argues that his approach differs from well-known theories of cultural dimensions¹¹ insofar as it derives constructs from a priori theorizing and tests their fit to empirical data.

The economics of religion is an area that has grown considerably in recent years.¹² In Chapter 21, Gani Aldachef and Jean-Philippe Platteau argue in their introduction that there are:

… at least two fundamental reasons of why an economist might be interested in understanding the functioning of religious institutions and their relationship with economic development. The first comes from the role that religion plays in influencing [the highly persistent] cultural norms and beliefs in a society. … Secondly, religion is a principal source of social identification in a pre-industrial society. If identity matters for certain key aspects of economic behavior, such as cooperation and provision of public goods … we need to understand the effects of religious identification and of its intensity on the behavior of individuals.

They first take religion as given and analyze its effects on economic behavior, and next consider that, in some aspects at least, religion may become endogenous since it is often used by politicians to strengthen their power or weaken that of the opposition.

The final chapter examines strategic relationships between traditional norms in custom-driven poor societies and modern statutory law that aims to correct social inequalities embedded in the custom. In Chapter 22, Jean-Philippe Platteau and Zaki Wahhaj discuss these interactions mainly in developing countries in Africa and the Middle East and in India, where customs that victimize at least a fraction of the population, such as different inheritance provisions for men and women, female circumcision, or child marriage, are deeply rooted cultural facts. Platteau and Wahhaj suggest that modern laws are often rejected (‘dead letters’, to use their term) unless they are accompanied by social and political changes. They use some simple game-theoretical and political-economy arguments to show that there are other possibilities besides being just dead letters. If many members of the group appeal to modern law, customs can be displaced. Between dead letter and full displacement, there is a set of intermediate cases in which custom ends up going towards modern law.

1.7 Conclusion

All of the chapters in this volume indicate, either explicitly or implicitly, some fruitful areas for further research in the different aspects of the field that the chapters cover. To conclude, we would suggest simply that the future development of the subdiscipline of the economics of art and culture depends importantly on two significant considerations. (i) It depends on being able to continue to apply innovative theoretical and methodological developments from mainstream economics to the analysis of a range of challenging problems at micro, meso, and macro levels in the arts and culture. Much current research in the field is doing this; its vigor and imagination is evident, for example, in the pages of the field’s premier journal, the Journal of Cultural Economics. (ii) The subdiscipline needs to maintain its open-minded relationship with other areas of the humanities and social sciences—it is clear, for example, that research collaborations between cultural economists and scholars from other disciplines have the potential to enrich both sides of the divide.

We began this chapter with a reference to Mark Blaug. It may also be appropriate to end with one of his conclusions, where he regrets that cultural economics—a field that had been ‘created almost de novo by Baumol and Bowen’s (1966) book’—had not promoted ‘developments that would spill over with benefit to economics and econometrics outside of its own domain… [Cultural economics] is a little insular and unwilling to learn from the developments in other areas of economics, not to mention psychology, sociology and policy analysis’ (Blaug, 2001, p. 133). We agree with Blaug’s observation and suggest it is time to start thinking more ‘out of the box’. In this second volume of the Handbook of the Economics of Art and Culture we hope that we have gone some way in this direction.

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