Arts, markets, and governments

Many arts firms are experiencing increasing costs relative to their revenues. This dissertation argues that demand management, if properly defined and pursued, represents at least a partial solution to this problem. First, an approach to demand expansion that depends on the luxury image of arts firms' products is compared both theoretically and empirically to one that emphasizes exposing new audience members to the arts. Data on symphony orchestras suggest that the first approach is more effective for lower-budget orchestras, while the second is better for larger orchestras. Second, the relationship between public subsidies to the arts and private philanthropy is examined. Whereas arguments could be made that public funds either leverage or crowd out donations, symphony orchestra data indicate that the two funding sources are in fact independent. Third, on the cost side, it is shown that the ability to lower costs by substituting part-time or noncontracted artists for some that are currently full-time may be an effective strategy to fight the cost-revenue gap, for some firms. Based on these results, it is argued that public arts policy that treats all firms homogeneously and restricts the use of funds is almost certainly suboptimal.