The Making of Cultural Policy: A European Perspective

17

Civil War has not increased consumption of high culture proportionally. Of course, high culture may be a
luxury good. If this effect is strong enough, high culture is a Giffen good so higher prices induce higher
demand - e.g., Urratiaguer (2002).

Even if a minority values high culture, the government may wish to stimulate that the majority has
an interest in it. Such paternalism overrules consumer sovereignty. However, Bille (1997) shows that the
Danish public is willing to pay at least as much as the Royal Theatre in Copenhagen receives in public
subsidies, even though the visitors comprise only 7 per cent of the population and are richer and better
educated. The willingness to pay of non-users of the Royal Theatre comprises the biggest part of total
willingness to pay, namely 82 per cent. She estimates total consumer surplus for visits at the theatre to be
only 15 per cent of public grants to the theatre, so government subsidies must be justified on basis of non-
market benefits of the Royal Theatre. Many people are happy to support the arts even if they do not visit
themselves. There is no need for paternalism, since people attach option or other values to performing
arts, like to read critical reviews or watch recordings of performances, value the derived benefits for
television, the film industry, cultural education, cultural heritage and traditions, and cherish the
international prestige. See also Frey and Pommerehne (1989).

People have many demands on their time, so it is difficult to fit in theatre, opera, concerts or
museums. The full cost thus corresponds to the cost of entrance plus travel costs and foregone after-tax
wage income. High-wage earners face a higher cost of cultural events than low-wage earners. Hence,
higher wages may induce lower demand even if high culture is a luxury good. Since the entrance fee is
only part of total cost, the elasticity of demand with respect to the entrance fee will be lower especially
for higher incomes. This offers scope for price discrimination.

3.2. Value of culture

Throsby (2001) explains the aesthetic, decorative, spiritual, social identity, historical, symbolic and
authenticity value of art. Art also has use, exchange, store, status, option or bequest value. Defenders of
culture accuse economists of equating the value of arts to the price, but apart from the marginal consumer
people pay less than they are willing to pay. The difference added over all consumers is the consumer
surplus value. Similarly, all producers except the marginal one are willing to supply below the market
price and the difference is the producer surplus. Under perfect competition profits are zero and welfare
consumer plus producer surplus. Monopolies raise prices above marginal costs (especially is demand is
not very elastic) and restrict the volume of trade. If profits are distributed to households, the loss in
welfare corresponds to the familiar welfare loss triangles. The welfare costs are high if demand and
supply are inelastic with respect to prices. The chances of a cultural product being put into market are
higher under monopoly than under perfect competition, since profits are then more likely to cover fixed

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