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Economics of the arts and literature

Economics of the arts and literature or cultural economics (used below for convenience) is a branch of economics that studies the economics of creation, distribution, and the consumption of works of art and literature. For a long time the arts were confined to visual and performing arts in the Anglo-Saxon tradition. Usage has widened since the beginning of the 1980s with the study of cultural industry (cinema 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 arts in a broad sense. The goods considered have creative content, but that is not enough to qualify as a cultural good. Designer goods are not 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 decennia, including pollution, corruption and education. Works of art and culture have a specific quality, which is their uniqueness. There just aren't two Nighthawkses.

As there is no equivalent item for each, 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. In his economic framework, these goods do not have the usual decreasing marginal utility. Key works in the cultural economics as such were those of Baumol and Bowen (Performing Arts, The Economic Dilemma, 1966), of Gary Becker on addictive goods, and of Alan Peacock (Public Choice).

  • The first concentrates on the existence of productivity growth in some areas of production, thus contradicting the relevance of cost disease. Staying with the "Tartuffe" example, the same performance can be viewed by an ever larger audience by improvements in the design of theatres, and by the introduction of microphones, television and recording.
  • The second is concerned with the allocation of subsidies to the cultural sector. While these should be in the general public interest, they may have an income distribution effect, e.g. if they reduce cost to the relatively well-off part of society. This is the case when the well-off are overrepresented in the audiences of subsidized plays, or when subsidies go to a small elitist group of artists.
  • Uncertainty on value. The demand for a good (success) is hard to predict. This is a characteristic of an experience good.
  • Infinite variety. You can differentiate between products, e.g. a car, on basis of its characteristics. Many products allow classification on a relatively small number of such characteristics. Cultural goods, however, have a very high number of them, which, on top of that, often are subjective. This makes them hard to compare.
  • High concentration in traded products. A major part of sales is in best-sellers or block-busters.
  • Short life cycle. Most items are sold shortly after introduction.
  • High fixed cost. There is high cost before introduction. Making a movie is much more expensive than producing another copy.
  • There is an extremely unequal income distribution within the market segment. A very small group of people earn a high proportion of the total income.
  • There is a structural excess supply of labour. There are always more people who like to earn their income as an artist than there is demand for them.
  • There are intangible returns to labour, so that people accept lower wages than their qualifications would earn in a different market.
  • Non-separation of artist and work. The image their product gives them, is important to artists.


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