On the Justification for the Public Support of Arts_Fullerton

7/29/2019 On the Justification for the Public Support of Arts_Fullerton

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O N J U S T IF IC A T I O N S F O RP U B L IC S U P P O R T O F T H E A R T SDon Ful ler ton

A l a r g e li te r a t u r e h a s d i sc u s s e d t h e p h i lo s o p h i c a l a n d e c o n o m i ca r g u m e n t s t h a t m i g h t j u st if y g o v e r n m e n t in v o l v e m e n t a n d s u b s id i e s t op u b l ic c h a r it ie s f o r t h e a rt s. M a j o r d i s a g r e e m e n t s c h a r a c t e r i z e th i sl it e r a tu r e . O n t h e o n e h a n d , a d v o c a t e s f o r t h e a r t s j u s ti fy g o v e r n m e n ts u b s id i e s b y t h e i n h e r e n t v a l u e o f a r t f o r t h e c u l t u r a l d e v e l o p m e n t o fo u r s o cie ty , t h e e d u c a t io n o f o u r c h i ld r e n , a n d t h e e n j o y m e n t o f o u rc iti ze n s . O n t h e o t h e r h a n d , s o m e a n a l y ti c a ll y -m l n d e d e c o n o m i s t s ( b u tn o t a l l) m a y a r g u e t h a t t h e f r e e m a r k e t w o r k s r e a s o n a b l y w e l l o n i t so w n , w i t h o u t m u c h g o v e r n m e n t a l i n t e r f e r e n c e , u n l e s s s o m e w e l l -d e f i n e d m a r k e t f a i lu r e c a u s e s a r n i~ a ll oc a tio n o f r e s o u r c e s t h a t c o u l dj u s t if y p u b l i c a c t i o n .

T o h e l p c l a r if y t h e a r g u m e n t s , I w i s h t o r e v i e w s e v e r a l o f t h es t a n d a r d ju s t if ic a t io n s fo r p u b l i c s u p p o r t o f th e a r ts , a n d d e s c r i b e w h ys o m e e c o n o m i s t s h a v e s u c h t r o u b l e f i n d i n g o n e t h a t i s a n a l y t i c a l l ys o u n d , r ig o r o u s , a n d c o n v i n ci n g , l rm a l ly , I w i ll p r e s e n t a n e w a r g u m e n tb a s e d o n t h e c o n c e p t o f e x te rn a li ti es th a t m a y h av e m o r e a p p e a l t oe c o n o m i s t s . A c t u a l ly , i t i s j u s t a n e w a p p l i c a t io n , t o t h e a r ts , o f a ne x i s ti n g c a s e m a d e i n t h e e c o n o m i c s l i t e r a t u r e f o r i n - k i n d t ra n.~ fe rs .D i s c u s s i o n o f t h e r e la t iv e m e r i t o f v a r i o u s j u s ti fi c a ti o n s f o r g o v e r n m e n ts u p p o r t i s e s s e n t i a l f o r u n d e r s t a n d i n g t h e s i,~ ,n ific an ce o f a r t i n ad e m o c r a t i c s o c ie ty a n d i n a n e c o n o m i c e n v i r o n m e n t . I f w e r e a lly v a l u ea r t, t h e n w e o w e it th e c h a n c e t o b e a n a ly z e d , to b e j u s t if ie d , a n d t o b eh e a r d .

A c c o r d i n g l y , th e n e x t s e c t i o n r ev i ew s j u s ti fi c a ti o n s f o r p u b l i c s u p -p o r t t h a t h a v e b e e n r a i se d i n t h e l i te r a t u re . I t a l so p o i n t s o u t w h ye c o n o m i s ts h a v e h a d s u c h t r o u b l e a c c e p t i n g th e s e a r g u m e n t s w i th i nt h e i r n r i g o r o u s " a n 0 J y t ic a l f r a m e w o r k . N o n e o f t h e s t a n d a r d j u st if ic a -t i o n s b y i t s e l f s e e m s a d e q u a t e t o e x p l a i n t h e d o c u m e n t e d s i z e o f

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g o v e r n m e n t s u b s i d i e s , t h o u g h a g e n e r a l c a s e m a y r e l y o n a l l s u c hj u s ti f ic a t io n s i n c o m b i n a t i o n .F i n a ll y , I s u g g e s t a s o m e w h a t n e w p e r s p e c t i v e o n e x t e rn a l it ie s , o n ej n st if ic a ti o n t h a t m a y h a v e m o r e a p p e a l .

Justifications fo r Public SupportM a n y o f th o s e w h o p a r t i c ip a t e i n t h e a r t s m a y t h i n k it o b v i o us th a tg o v e r n m e n t o u g h t t o p r o v i d e fi n a n ci a l s u p p o r t . T h e p r e s e rv a t io n a n dd i s p l a y o f a r t i s t i c t r e a s u r e s p r o v i d e n a t i o n a l p r e s t i g e , e d u c a t i o n a lb e n e f it s, c u l t u ra l e n r i c h m e n t , a n d n e a r l y n n li m i t e d e n j o y m e n t t h r o u g ht h e i r i n h e r e n t a e s t h e t ic v a lu e . B u t e c o n o m i s t s p o i n t o u t t h a t m a n yg o o d s h a v e q u a l it ie s s im i la r i n n a t u r e . F o r e x a m p l e , m o v i e t h e a t e r sh a v e m a n y o f t h e s a m e a t tr ib u t e s a s a r t m u s e n m s o r a r t is ti c p e r fo r m a n -c e s. L i k e t h e p r o d u c t i o n o f f'm e a r t, t h e p r o d u c t i o n o f H o l l y w o o dm o v i e s r e q u i r e s m u c h t a l en t , t im e , a n d e x p e n se . T h e s e w o r k s c a n b ep u t o n d is p la y w i th o u t b e i n g u se d u p , a n d a d m i ~ i o n c a n b e c h a r g e d .T h e y c a n b e p r e s e r v e d f o r th e e n j o y m e n t o f f u t u r e g e n e r a t io n s . T h e ya r e o f t e n e d u c a t i o n a l o r h i st o ri ca l, a n d t h e y h e l p d e f i n e o u r c u l t u r e ina e s t h e t ic a n d o f t e n th o u g h t - p r o v o k i n g w a y s . M a n y f in d t h e m e n jo y -a b l e t o v i e w .Y e t s u b s i d ie s a r e n o t j u s t i fi e d f o r t h e t h o u s a n d s o f p r o f i t -m a k i n gm o v i e t h e a t e r s i n t h is c o u n t r y j u s t b e c a u s e t h e y p r o v i d e a p r o d u c tw h i c h i s " go o d" . W h y s h o u l d g o v e r n m e n t s u p p o r t " t h e a r ts " a n d n o tm o v i e t h e a t e rs ? T h e a n s w e r is n o t s o o b v io u s .T o a d d r e s s t h i s ty p e o f q u e s t io n , e c on o m i.~ ts s i n c e A d a m S m i t hh a v e f o u n d t h a t t h e m o s t c o m p e l li n g a n d u s e f u l f r a m e w o r k is t h e p o w e ro f c o m p e t i t iv e m a r k e t s . T h e i n it ia l c o m p e t i ti v e m o d e l is u s e f u l n o t f o ri ts in i t ia l c o n c l u s i o n s , b u t f o r i ts f r a m e w o r k o f a n a l y si s. T h i s

f r am e w o r k p u t s t h e b u r d e n o f p r o o f u p o n t h o se w h o w o u l d tr y to ju s tif yg o v e r n m e n t s u p p o r t f o r a n y ac tiv ity , a n d i t i s u s e fu l b e c a u s e i t h e l p sp r e c l u d e i n t e r f e r e n c e in p r iv a t e m a r k e t s t h a t d o o p e r a t e w e l l o n t h e i ro w n . T h e p r e s u m p t i o n o f th e f r e e -m a r k e t m o d e l t h u s h e lp s a v o id m a n yu n j u s t i fi e d g o v e r n m e n t in t e r v e n t io n s , a n d t h i s a d v a n t a g e i s l o s t u n l e s st h e p r e s u m p t i o n i s a p p l i e d n n i fo r m l y . E c o n o m i s ts t h e r e f o r e s t a rt w i t ht h e p r e s u m p t i o n t h a t p u b l i c s u p p o r t o f t h e a r ts m u s t b e d e m o n s t r a t e db y r i g o r o u s a n a l y ti c a l a r g u m e n t .L e t u s n o w r e v ie w so m e o f t h e m a j o r a rg u m e n t s t h a t h a v e b e e na d v a n c e d a s j u s t i f i c a t i o n s f o r p u b l i c s u p p o r t o f t h e a r t s i n g e n e r a l .E n t i r e b o o k s h a v e b e e n w r i tt e n a b o u t s o m e o f t h e s e i ss u e s (e .g . N e t z e r ,1 9 78 , B a n f i e ld , 1 9 8 4 , W e i s b r o d , 1 9 8 8 , a n d G r a m p p , 1 9 89 ), s o t h e

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d i s c u s s io n h e r e w i ll o n l y b e a b l e t o g i v e a f la v o r fo r s o m e o f th e p r o sa n d c o n s o f e a c h a r g u m e n t .Ris ing Costs

I n a q u i n t e s s e n t ia l e x a m p l e o f e c o n o m i c a n a ly s is t h a t i s b o t hr i g o r o u s a n d i n tu i ti v e , W 'd li am B a u m o l (1 96 7) d e s c r i b e s w h y p u b l i cs e r v ic e o r g a n iT ~ t io n s m a y e x p e r i e n c e c o s t d i s a d v a n t a g e s t h a t i n c r e a s ev i rt u a ll y w i t h o u t li m i t. I n o n e s e c t o r o f t h e e c o n o m y , l a b o r b e c o m e si n cr e as in g l y p r o d u c t i v e t h r o u g h t e c h n o lo g i c a l a d v a n c e s s u c h a s m o r ee f fi c ie n t c o m p u t e r s , e a s i e r communicatiOns, e t t e r p r o d u c t s , o r f a s te rt ra v e l. C o m p e t i t iv e fo r c e s i n c r e a s e t h e r e a l w a g e o v e r t im e , re f l e c t in gt h is g r e a t e r p r o d u c t iv i ty . I n c o n t r a s t, l a b o r i n th e n o n p r o g r e s s i v es e c t o r c o n d u c t s b u s i n e s s a s u s u a l: a t e a c h e r a t t h e b l a c k b o a r d , apOliceman o n t h e b e a t , a n a r t is t w i t h a n e a s e l P r o d u c t i v it y d o e s n o tg e n e r a t e w a g e in c r e a s e s in t h is se c t o r , b u t w o r k e r s a r e f r e e t o c h o o s eb e t w e e n t h e t w o s e c to r s . I n c r e a s i n g w a g e d i s p a r i ty w i ll a t t ra c t t oi n d u s t r y s o m e s c ie n t is ts t h a t mighth a v e b e e n t e a c h e r s , o r d e s i g n e r st h a t m i g h t h a v e b e e n a rt is ts . I f th e n o n p r o g r e s s i v e s e c t o r is fo r c e d t om a t c h w a g e s t h a t c o n t i n u e t o r is e i n t h e p r o g r e s s iv e s e c t o r , it s c o s tsw i ll c o n t i n u e to r i s e w i t h o u t t h e o f f s e t ti n g p r o d u c t i v it y . I f i t d o e s n o tm a t c h w a g e i n c r e a se s , it s l a b o r f o r c e a n d o u t p u t w il l c o n t i n u e t o f a ll.

T h i s ra t h e r d i sm a l th e o r y h a s b e e n a p p l i e d t o e v i d e n c e i n t h ep e r f o r m i n g a r ts b y B a u m o l a n d B o w e n ( 19 66 ) w h o p O i n t o u t t h a t f a st e rp e r f o r m a n c e s a re v a l u e d o n t h e a s se m b l y l i ne , b u t n o t a t t h e o p e r a . I tm a y a p p l y w i t h e q u a l f o r c e t o t h e v is ua l a rt s. O n t h e o t h e r h a n d , s o m ea r ti st s m a y u s e t e c h n o l o g i c a l a d v a n c e s t o a c h i e v e a g i v e n e f fe c t i ns h o r t e r t i m e , a n d s o m e c u r a t o r s m a y b e b e t t e r a b l e t o p r e s e r v e p a i n t -in g s u s in g n e w t e c h n i q u e s . J e s t a s w e g a i n f r o m n e w t e c h n o l o g i e s t h a ta ll o w s h a r p e r m u s ic a l r e p r o d u c t i o n s o n c o m p a c t d i sc s, w e c a n g a i nf r o m h i g h q u a l i t y r e p r o d u c t i o n s o f a r t, i n e x p e n s iv e p r i n ts , o r s a f e t ra v e lo f e x h i b it io n s . A l s o , e v e n i f c o s t s d o r is e o v e r t im e , in c r e a s i n g i n c o m e sm a y a ll o w u s t o b e a r t h o s e c o s ts w h il e b u y i n g t h e s a m e a m o u n t o f a r t.F i n a ll y , e v e n i f t h i s a r g u m e n t ex pJ aln .~ w h y c o s t s i n c r e a s e a n d o u t p u tfa lls, i t d o e s n o t ju s ti fy g o v e r n m e n t su b s id i e s. G o v e r n m e n t s h o u l d n o ts u b s id i z e e v e r y g o o d t h a t b e c o m e s e x p e n s i v e o r o b s o l e t e , s o a n o t h e ra r g u m e n t m u s t i d e n t if y s o m e t h i n g sp e c i a l a b o u t a r t.Dif f icul t ies Def ining Inco m e

S e v e r a l r e l a t e d v i e w s a r e o f f e r e d b y l e g a l s c h o l a r s f o r t h e t a x~ .x em p tio n o f n o n p r o f i t i n s ti tu t i o n s . W i ll ia m A n d r e w s ( 1 9 7 2 ) p O i n tsp u t t h a t t h e i n c o m e ta x is b a s e d o n t h e a b il it y t o p a y , o r c o n t r o l o v e r

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r e s o u r c e s, w h e r e i n c o m e is d e f i n e d a s c o n s u m p t i o n p l u s c h a n g e i n n e tw o r t h . C h a r i t a b l e g i f ts d e t r a c t f r o m o n e ' s a b i li ty t o p a y t ax , a s t h e y a r en e i t h e r c o n s u m p t i o n n o r sa v in g . I n a d d i t i o n , B i t tk e r a n d R a h d e r t( 19 7 6 ) a r g u e t h a t e v e n i f a n i d e a l s y st e m w o u l d t a x th e i n c o m e o fn o n p r o f i t i n s t i t u t i o n s , n o p r a c t i c a l d e f i n i t i o n o f i n c o m e i s s u i t a b l e .D u e s - p ay i n g m e m b e r s a n d o t h e r d o n o r s m i g h t b e v ie w e d a s c u s to m e r sw h o p r o v i d e i n c o m e , o r t h e y m i g h t b e v i e w e d as s h a r e h o l d e r s w h op r o v i d e c a p i ta l t h a t s h o u l d n o t b e t a x e d a s i n c o m e . S i m il ar ly , t h ed e d u c t i b i li ty o f a ll a m o u n t s e x p e n d e d t o w a r d c h a r i ta b l e o b j e c ti v e sm i g h t b e t h o u g h t t o i n c l u d e c a p i t a l o u t la y s s in c e t h e s e a c c u m u l a t i o n sa r e i rr e v o c a b l y d e d i c a t e d t o t h o s e o b j e c ti v es . S i n c e t h e i n s t i tu t i o n c a nn e v e r p a y o u t t o a n y o w n e r , it s f u n d s c ~ n n o t r e p r e s e n t a n y i n d iv i d u a l 'sab i l it y t o pay .

T h e s e p o i n t s i l l u s t r a t e t h e a m b i g u i t i e s t h a t h e l p e d l e a d t o t h ec u r r e n t t a x tr e a t m e n t o f n o n p r o f i t i n s ti tu t io n s , b u t t h e y r e m a i n a m -b i g u it ie s . D o n o r s c a n b e s a id t o f e e l j u s t a s m u c h v a l u e f r o m t h e i r g i ft sa s f ro m t h e ir o t h e r c o n s u m p t i o n e x p e n d i tu r e s , o r e l s e t h e y w o u l d n o tg iv e . T h e y a r e b u y i n g p r iv i le g e s o f m e m b e r s h i p , a p l a q u e o n t h ed o n a t i o n , a l it tl e p r e s t i g e , o r a t l e a s t s o m e p e r s o n a l s a t is f a c ti o n . T h e r eis n o l o g ic a l n e c e s s i ty t o e x e m p t g if ts , t h o u g h t h e d e d u c t i o n m i g h t b ej u s ti fi e d o n o t h e r g r o u n d s .T h e d i ff ic u l t y o f m e a s u r i n g in c o m e d o e s n o t r u l e o u t a n yr e a s o n a b l e a t t e m p t t o d o so . I n v e s t m e n t i n c o m e a n d a d m i ~ i o n f e e sa r e p r e t t y w e l l d e f i n e d , a n d t h e t a x c o d e h a s f a c e d m e a s u r e m e n tp r o b l e m s f o r ta x a b le i n c o m e a t l e a st a s f o r m i d a b l e a s th o s e d e s c r i b e df o r n o n p r o f i t s . H a n s m a n n (1981) p o i n t s o u t t h a t e a r n i n g s c a n b ed e f i n e d a s r e c e i p t s f r o m i n v e s tm e n t s , b e n e f a c t o r s , a n d v is it or s, m i n u se x p e n d i tu r e s o n t h e s er v ic e s t o w h i c h th e y a r e d e d i c a t e d . T h e i ss u e isc o m p l i c a t e d b y t h e l a c k o f a c l e a r r a ti o n a l e f o r t h e e x i s te n c e o f t h e

c o r p o r a t e i n c o m e ta x , g i v e n t h a t i n d i v id u a l s a r e t a x e d o n t h e i r a b i li tyt o p a y u n d e r t h e p e r s o n a l i n c o m e ta x sy s te m . B u t g i v en a s e p a r a t ec o r p o r a t e i n c o m e ta x o n t h e r e t a i n e d e a r n in g s o f a c o r p o r a t i o n t h a tm a y p a y n o d i v id e n d s , t h e r e i s n o l o g ic a l r e a s o n ( a b s e n t s o m e o t h e rj u s ti fi c a ti o n ) t o e x e m p t t h e n o n p r o f i t 's r e t a i n e d e a r n in g s .C o n t r a c t F a i lu r e , o r A s y m m e t r ic I n fo r m a t io n

P r o f i t- s e e k i n g f ir m s m a y w o r k f in e w i t h f u l l i n f o r m a t i o n , b u t s o m em a r k e t s a r e c h a r a c t e r i z e d b y c o n s u m e r s t h a t c a n n o t a d e q u a t e l ym o n i t o r q u a li ty a n d p r o d u c e r s t h a t t h e r e f o r e h a v e a n i n c e n t i v e t o s h i rk .A r r o w (1 96 3) n o t e s t h a t p a t i e n t s m a y p r e f e r n o n p r o f i t h o s p i t a ls t h a th a v e l e s s i n c e n t i v e t o c u t c o r n e r s . N e l s o n a n d K r as hin .~ k y (1 9 73 ) a p p l y

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the theory to day-care centers that are difficult for parents to judge.These are primarily commercial nonprofits, but Hansmann (1980)furth er discusses those that rely on donations. Ou r exam ple isanalogous. Ar ts organiTations such as muse-m,~ org ani7ed for profitmight contract with memb ers or o ther donors for pu blic services suchas art preservation, exhibition, and education, but such a contractwould fail to ensure the quality of those services. The firm might seekshort run profits by providing inadequate long run care of the art.Howeve r, the nonprofit form at least offers some a dditional assurancethat the funds are being used appropriately.

This theory is successful in the direction of its inte nded purpose,namely, the explanation of the role of nonprofit institutions in anotherwise mark et economy. It does not relate to the rationale for taxexemption, however. Eve n if the retained earnings of nonprofit institu-tions we re fully taxed, the non profit form would still provide the samesignal to consumers that they were less likely to b e gouged.Compensation for Capital Constraints

Assuming for the mom ent that subsidies are justified, why shouldthey come in the form of exemptions for the investment income oforchestras, art mu se-m s etc.? That is, if the goal is preservation andeduc ation , why enc oura ge retain ed earnings? Han.~m~nn (1981) ad-dresses this question by noting that n onpro fit institutions can not issuestock. The y cannot attract investors' capital, because they canno t payout any profits. Their services may be highly valued by consumers,either bec ause of contract failure with profit-seeklng firms or becau seof the public or external nature of the benefits, but because of thenondistribution constraint these non profit firms will be unab le to raiseenough capital to provide those services. Th e exemption from inco metax ma y then provide a rough compensation for that eoustraint in a waythat aids the non profit's capital accumulation.

Clearly this argum ent ca nnot stand on its own, as it must rely onone of the ot her ma rket failures listed here. In addition, Go odsp eedand Keny on (1988) show that the com pensation is rough at best. It~loesnot restore the eco nom yto the optimality ofa w orl d w ithout either~he tax on the profit sec tor or the co nstraint on th e non profit sec tor.Finally, they doub t the existence of a real constraint. Alt hou gh non-profit institutions .cannot issue stock, they can be fun de d by deb t or byioundatious and major donations that are not available to firms operat-ng fo r profit.

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RedistributionO n e p r o b l e m w i th a p u r e l y co m p e t it iv e fr e e - m a r k e t e c o n o m y ist h a t i t d o e s n o t e n su r e a f a ir d i s tr ib u t io n o f i n c o m e . A d e m o c r a t i csoc ie tym i g h t t h e r e f o r e w ish i ts g o v e r n m e n t to i n t e rv e n e i n t h e m a r k e t ,desp i t e the d i s to r tions in cons um er cho ice a ssoc ia ted wi th t axes andt ransfe r s , t o ens ure a de cen t s t and a rd o f liv ing fo r eve ryone . In o urcase, arts organ i7a t ions a re cha r i ti e s tha t p rov ide f ree adm iss ion ando t h e r b e n e f it s t h a t m i h t b e t h o u g h t t o h e l p t h e p o o r . D a v i d R o c k -efe l ler says:" I be l i eve tha t un le ss w e ca n g ive the peo p le wh o live in ou rg h e t to s , w h o a r e t h e u n d e r - p r iv i le g e d o f o u r r i c h c o u n t ry ,a h o p e t o b e a b l e to e n j o y t h e b e t t e r t h in g s i n li fe a n d n o tjus t the b a re necess i ti e s - - un le ss we can conv ince the mtha t they , too , can s ha re in be au ty an d c rea t iv i ty , a re w erea l ly going to sa t i sfy the i r wants?" ( in Banf ie ld , 1984,p.60, fro m G ingrich , 1969, p.3)

C l e a r ly th e e x t r e m e f o r m o f t h i ; a r g u m e n t is a b su r d . N o o n e c a nr e a ll y b e li e v e t h a t t h e f ir s t i t e m o n t h e a g e n d a o f t h e h o m e l e s s is t o h a v em o r e su bs i d iz e d a cc e s s t o t h e a rt s. D a t a i n F e l d , O ' H a r e , a n d S c h u s t e r(1 98 3) r e v e a l th a t t h e t o p i n c o m e g r o u p r e p r e se n t i n g 8 p e r c e n t o f t h epopu la t ion acco un t s fo r 18 pe r cen t o f the v is its to a r t m use nm ; , wh i l et h e b o t t o m i n c o m e g r o u p r e p r e s e n t in g 8 p e r c e n t o f t h e p o p u l a ti o na c c o u n t s fo r a b o u t 2 p e r c e n t o f v is its t o a r t m u se u m s . A n y d i r e c tbene f i t s o f subs id ie s to th e a r t s m us t be sa id to ac c rue to th e a f f luen t .

D a v i d R o c k e f e l le r p r o b a b ly h a d i n m i n d a n a r g u m e n t b a s e d o ne q u a l it y o f o p p o r t u n i ty , a s su g g e s te d b y B a u m o l a n d B o w e n ( 19 66 ,p .3 79 ) w h e n t h e y s a y t h a t " t h e e x t r e m e l y n a r r o w a u d i e n c e f o r t h e a r tsis a c o n se q u e n c e , n o t o f l imi ted i n t e re s t, bu t o f the fac t tha t a ve ry a rges e g m e n t o f t h e c o m m u n i t yh a s b e e n d e n i e d t h e o p p o r t u n i t y t o l e a r n t oapp rec ia te them." I t r ema lng specu la tion , how ever , wh a t the po orw o u l d c h o o se i f g i ve n m o r e o p p o r t u n i ty . A n d w h i l e i t m a y r e p r e se n ta c a se f o r e d u c a t i o n i n a n e c o n o m y w i t h o u t f u ll y i n f o r m e d c o n su m e r s ,i t i s no t b y i t se lf a ca se fo r m ere ly p rov id ing the opp or tun i ty to v iew a r t .

Fe ld , O 'Ha re , and Schu s te r (1983) no te th a t the be ne f i t s o f v is itst o a r t m u se u m ; r e p r e s e n t o n ly p a r t o f t h e i m p a c t . Th e y a l so c a l cu l a tethe d i s t r ibu t iona l pa t t e rn o f va r ious sources o f income to mnseun ,~su c h a s a d m i ~ i o n f e es , d o n a t io n s , a n d g o v e r n m e n t su b si di es . A d m i s -s ion fees a re pa id by those in re l at ive lyh i g h i n c o m e b ra c k e t s , d o n a t i o n s

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a r e r e c e i v e d f r o m t h o s e in e v e n h i g h e r i n c o m e b r a c k e ts , a n d t h ed e d u c t i o n f o r g i ft s i s " p a i d fo r" b y t a x p a y e r s w h o a l so l ie p r e d o m i n a n t l yin t h e u p p e r b ra c k e t s o f t h e p r o g re s si v e p e r s o n a l in c o m e ta x . O nb a l a n c e , t h e a r t s a r e m i ld l y r e d i st ri b u t iv e i n t h e s e n s e t h a t t h o s e w h of i n a n c e t h e m h a v e i n c o m e s li h tl y h i g h e r t h a n t h o s e w h o b e n e f i t. T h i sc a l c u l a t io n i s e n li h t e n in g , b u t i t h a r d l y p r e s e n t s a c a s e f o r u s i n g t h ea r t s t o r e d i s t r i b u t e i n c o m e , h o w e v e r , a n d i t d o e s n o t s a y t h a t t h eg o v e r n m e n t p o r t i o n o f t h e e q u a t i o n c o u l d n o t b e m o r e r ed i st n 'b u t iv e .Merit Goods

A n o t h e r v a r i a ti o n o n t h i s t h e m e is th a t a r t r e p r e s e n t s a " m e r itg o o d " w i th i n h e r e n t q u a l i ti e s th a t o u g h t t o b e p r o v i d e d o r s u b s i d iz e db y g o v e r n m e n t fo r t h e g o o d o f so c ie ty . F u n d a m e n t a ll y , t h is ty p e o fa r g u m e n t i s p a t e r n a li st ic . B y d e n y i n g c o n s u m e r s o v e re i g n ty , i t d e n i e st h e p r e m i s e o f t h e f r e e -e n t e r p ri s e m o d e l th a t m a r k e t s a r e b e t t e r t h a ng o v e r n m e n t a t d e t e r m i n in g v a l u e . T h e p o o r d o n o t w a n t s o m e o n e e ls et o d e c i d e w h a t i s g o o d f o r t h e m , a n y m o r e t h a n t h o s e w h o a r e n o t p o o r .Publ ic Goods

T h e o p t im a l i ty o f th e f r e e -m a r k e t e c o n o m y r e q u i re s t h a t a ll g o o d sc a n b e b o u g h t a n d s o l d . I f a p ri v a te p r o d u c e r c a n e x c l u d e t h o s e w h od o n o t p a y , t h e n a p r ic e c a n b e c h a r g e d t h a t c o v e rs c o s t a n d t ri e s tom a k e a p r o f it . I n th is ca s e, t h e m a r k e t m e c h a n i s m c a n w o r k . I f t h eg o o d i s n o t " ex c lu d a b le ," h o w e v e r , t h e n b e n e f i ts f l o w t o t h o s e w h o h a v en o t p a i d . S i n c e e v e r y o n e re c e i v e s t h e b e n e f it , n o o n e h a s a n i n c e n t i v et o p a y f o r it . I f t o o m a n y c o n s u m e r s t ry to g e t a " f r e e r id e ," t h e n n op r o d u c e r c a n b re a k e v e n a n d t h e g o o d is n o t p r o v id e d . T h e m a r k e tf ails , e v e n t h o u g h t o t a l b e n e f i t s o f t h e g o o d e x c e e d i t s c o st .

I n o u r c a se , a r t c a n b e b o u g h t a n d s o ld , a n d a d m k i o n t o a r t se v e n t s c a n b e c h a r g e d . T h e p r i m a r y b e n e fi ts o f a r t a n d i ts v i ew i n g a r ee x c l u d a b le . O t h e r s m a y b e n e f i t i n d ir e c tl y , h o w e v e r , e v e n t h o s e w h od o n o t v is it t h e o r g a n i T a ti o n . T h e y m a y v a l u e th e c o n t i n u e d p re s e r v a -t i o n a n d a v a il ab il it y o f a r t, o r t h e a d v a n c e m e n t s i n i d e as , e d u c a t i o n ,a n d c u l t u r e t h a t i t m a k e s p o s s ib l e .

A n o t h e r u s e f u l d i s ti n c t io n i s w h e t h e r a g o o d i s "riv al" in t h e s e n s et h a t o n e ' s c o n s u m p t i o n p r e c l u d e s a n o t h e r ' s, o r n o n r iv a l in t h a t e a c hc a n b e n e f i t w i t h o u t u s in g i t u p . I f f o r e x am p l e , a n a r t m u s e u m i su n c r o w d e d , f o r e x am p l e , o n e m o r e v is ito r m a y im p o s e n o a d d i ti o n a lc o s t. E v e n i f t h e g o o d i s e x c l u d a b le , t h e m a r k e t f a il s b e c a u s e a n yp r i v a te p r o v i d e r w o u l d h a v e t o c h a r g e a p o s i ti v e p r i c e . I t w o u l d t h u sd i s c o u ra g e u s e b y s o m e f o r w h o m t h e b e n e f it s e x c e e d t h e c o s t.

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A rt i t se l f i s no t ca tegor ica l ly a pub l i c goo d beca use consu m pt ioncan be cha rged fo r ( a t l ea s t a t muse um s) (exc ludab le ) and i s l imi ted( r iva l ). A l th oug h no t a lways reve lan t and pe rhap s a b i t s t ra ined , thee x a m p l e is n o t n n l i k e a m o v i e t h e a t e r w h e r e e m p t y se a ts i m p l y th a t o n em or e v iewer has no soc ia l cos t . T he bes t exh ib i ts can g e t ve ry c rowded~so one m or e v i si to r doe s imp ose a cos t on o the rs . Trave l fo r theexh ib it ion to rea ch add i t iona l v is i to r s can be ve ry expensive .Externa l i t i es

I n d i r e c t b e n e f it s c a n n o t b e so l d o r u s e d u p , h o w e v e r , so a r t m a yhav e posi t ive exte rna l it ies . Provis ion o f a r t has ben ef i t s tha t sp il l ove~t o n o n p u r c h a se r s . M u c h o f t h e l it e r a tu r e (e .g . B a u m o l a n d B o w e n ,1966 , Ne tze r , 1978) i s conce rned wi th l i s t ing and d i scuss ing theseex te rna li ti e s . Such a rgum ents m ay we l l ju s t ify pub l i c subs id ie s , bu tn o n e is a b o v e c h a l l en g e a n d n o n e i s d e m o n s t r a t e d e m p i ri ca ll y .

F i r st , a r t m ay p rov ide a source o f na t iona l p re s tige , p r ide , o rin te rna t iona l recogn i t ion . O f cou rse well -built ca rs , co m pu ter chips ,o r f d m s m a y a lso b e a so u r c e o f p r i d e . Th e c a se d e p e n d s o n sh ow in ga substant ia l d i f fe ren ce b e t w e e n a r t a n d o t h e r p r i v a te g o o d s t h a t w o u l djust i fy the subsidy . Also , th is poten t ia l ex te rna l i ty m ay ben ef i t then a t io n m o r e t h a n m a n k i n d i n g e n e ra l. M a n y E u r o p e a n c o u n t ri e s h a veexpor t l imi ta t ions on "na t iona l a r t i s t ic t reasures ," but one country ' sg a in m a y b e a n o t h e r c o u n t r f s lo ss.

Sec ond , th e avai labili ty o f cu l tura l ac t iv i ty m ay a t t rac t tour is t s ,o th e r bus inesses , and gen e ra l bene f i c i a l g row th ( see Rad ich , 1987).The case i s s t ronges t fo r a ma jo r me t ropo l i t an a rea tha t w ishes toa t t r a c t t h e r i g h t k i n d o f g r o w t h a n d m i g h t t h e r e f o r e sp o n so r t h e a r t s ,bu t no te aga in tha t the ex t ra bus iness fo r one c i ty com es p r imar i ly a tthe expens e o f ano the r city . I f competing c i t ies a l l increase the i ra t tr ac t iveness in th is way, then non e can a f fo rd to ignore th e a r t s andy e t n o n e t a d d i ti o n a l b u s in e s s m a y b e c r e a t e d .

Th i r d , f u t u r e g e n e r a ti o n s a r e n o t a b l e to v o i c e t h e i r d e m a n d f o rtoday ' s p re se rva t ions o f the a r t s. Ba um ol and Bo we n (1966 , p .385)re fe r to th is ex te rna l e f fec t a s a ca se "pa r exce l lence" o r pub l i c suppor t .Y e t m a n y p r iv a t e f i rm s m a k e c u r r e n t i n v es t m e n t s n e c e s sa r y to p r o v id ef o r t h e d e m a n d s o f f u t u re g en e ra ti o ns . T h e c a s e d e p e n d s o n s o m erea so n tha t pr iva te a r t s organiTat ions w i thout subsid ies wo uld not sees u f f ic i e n t f u t u r e p r o f i t o p p o r t u n i t i e s f r o m c u r r e n t p r e s e r v a ti o n .Ec o n o m i s t s m a y su g g e st th a t t h e y s e e n o f u t u r e p r o f it f o r t h e s a m ereas on the y see no cu r ren t p ro f i t. Th us subs idy s till need s jus tl f ica t ion .

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F o u r t h , m a n y p o i n t t o t h e e d u c a t i o n a l f u n c t io n o f t h e a r t s. I ng e n e r a l , w e b e n e f i t f ro m o t h e r s ' e d u c a t i o n b e c a u s e o f f e e d b a c k e f fe c tso n g r e a t e r f u t u r e i n n o v a t i o n , s o c i a l d i s c o u r s e , a n d e c o n o m i c a n dc u l tu r a l g r o w t h . A c a s e m u s t b e m a d e h e r e n o t o n l y t h a t t h e f i n e a r tsh a v e m o r e e d u c a t i o n a l c o n t e n t t h a n o t h e r e x c l u d a b l e p r i v a te g o o d s( li k e H o l l y w o o d m o v i e s ), b u t a l s o t h a t s u b s i d i ~ - ~ a r t s o rg ~ niT ~ tio n s i sa b e t t e r w a y t o a c h i e v e t h a t e d u c a t i o n a l g o a l t h a n f u r t h e r s u b s i d iz i n go t h e r e d u c a t i o n a l i n s ti tu t io n s . S c h o o l s a n d u n i v e r s it ie s m a y b e b e t t e ra b l e to r e a c h t h e t a r g e t a u d i e n c e w i th t h e d e s i r e d k n o w l e d g e i n a w a yt h a t m a xlm i T eS t h e b e n e f i c i a l e f fe c t . F o r m o s t a u d i e n c e s y e t to b ee d u c a t e d , t h a t v i e w i n g t h e a r t is t 's o r i g in a l i n a d i s t a n t m u s e u m m a y n o tb e m o r e e f fe c t iv e e d u c a t i o n t h a n v i e w i n g a n d d i s c u s si n g a p r i n t .

F i f th , T i b o r S c i to v s k y ( 19 8 3) n o t e s t h a t h u m a n s c r a v e s t i m u l a ti o na n d e x c i t e m e n t a s i n " li te r a t u r e a n d g a m b l in g , a r t a n d v i o l e n c e , s p o r t sa n d c r i m e ' ( p .7 ) . I t is n o t j u s t t h a t a r t m a y h a v e e x t e r n a l b e n e f i ts , b u tt h a t a l t e r n a t iv e f o r m s o f e x c i t e m e n t h a v e e x t e r n a l c o st s. T h u s :

% t h e m a i n j u s t if i c a ti o n f o r s u b s i d iz i n g t h e a r t s i s t o a c -q u a i n t t h e g e n e r a l p u b l i c w i th t h e a r ti s ti c o u t le t s t o m a n ' sp a s s i o n f o r e x c i t e m e n t , a d v e n t u r e a n d s t i m u l a t io n , in t h eh o p e t h a t a s t h e e x i st e n c e a n d a t t ra c t i o n o f th o s e o u t le t sb e c o m e m o r e w i d el y k n o w n a n d a p p r e c ia t e d , t h e y w i llh e l p t o d i s p l a c e t h e o b n o x i o u s a n d m o r e c o s i ly o u t l e t s t otho se sa m e pass ions" (p .14 ).

T h e i d e a h e r e i s p r im a r il y e d u c a ti o n a l , a s i n t h e p r e v io u s i te m .A l so , S c it o v sk y a c k n o w l e d g e s t h a t s u c h a p l a n m a y t a k e g e n e r a t i o n s .i n t h e s h o r t r u n , i t m a y b e m o r e e f fe c ti v e t o p r o v i d e r e c r e a t i o n a l s p o r tsf ac ili tie s a s an a l t e rna t ive ou t l e t fo r t h e en e rg ie s o f you th .~, New Argu m en t with M ore A ppe al to Econom ists

M a n y o f t h e a r g u m e n t s d i s c u ss e d in t h e p r e v i o u s s ec t io n c a n b er e ca s t in t e r m s o f a n e x t e rn a l it y , i n c l u d i n g t h o s e i n v o lv i n g m e r i t g o o d sm d r e d is t ri b u ti v e g oa ls . A n e x t er n a li ty a r is e s a n y t im e o n e p r o d u c e r~ r c o n s u m e r t a k e s a c ti o n s t h a t a f f ec t a n o th e r , w h e n t h e r e i s n o m a r k e t!o r i t. T h e c o n c e r n t h a t t h e d o n o r f e e l s f o r t h e d i s a d v a n t a g e d r e c i p i e n t:a n b e r e p r e s e n t e d b y t h e e x p re s si on s :

(1 ) U D -----UD(XD,YD,UR)U R --- UR (XR ,Y R)

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T h e d o n o r ' s u ti l it y ( U D ) d e p e n d s n o t o n l y o n h i s g o o d s (X D a n dY D ) , b u t a l s o o n t h e r e c i p i e n t 's u ti li ty ( U R ) . I f m a n y p o t e n t i a l d o n o r sf e e l t h e s a m e w a y, t h e n t h e y a r e t e m p t e d t o f r e e r id e : g iv i ng t o t h e p o o ri s n o n e x c l u d a b l e i n t h a t o n e d o n o r c a n n o t k e e p a n o t h e r p o t e n t i a ld o n o r f r o m a p p r e c i a t i n g t h e r e d i s t ri b u t io n . I t is a ls o n o n r iv a l i n t h a tm a n y d o n o r s c a n b e n e f i t fr o m a s in g l e g if t. T h u s g i v in g is a " p u b l icg o o d " th a t is in a d e q u a t e ly p r o v i d e d b y p r iv a t e m a r k e t s ( H o c h m a n a n dR o g e r s , 19 69 , T h u r o w , 1 97 1). G o v e r n m e n t c a n h e l p . I n f a ct , e v e nt h o u g h p o t e n t i a l d o n o r s d o n o t h a v e e n o u g h i n c en t iv e to g iv e v o l u n -t ar ily , th e y c a n a ll b e c o m e h a p p i e r b y v o t in g t o t a x th e m s e l v e s a n dp r o v i d e t r a n s f e r s t o t h e p o o r . T h e b a s i c l o g i c is , " I'l l g i v e i f y o u g iv e."S o f ar , w e h a v e a s s u m e d t h a t t h e d o n o r c o n s i d e r s th e r e c i p i e n t tob e t h e b e s t j u d g e o f h i s o r h e r o w n w e l l- b e in g , a n d s o t h e g i ft s s h o u l dj u s t i n v o l v e c a s h . S u p p o s e , h o w e v e r , t h a t t h e u t i li ty f u n c t i o n s a r es l igh t l y d i f f e r en t :( 2) U D = U D ( X D , Y D , X R )

U R ---- U R(X R,Y R)w h e r e X r e p r e s e n t s t h e a r ts a n d Y e v e r y t h in g e ls e . T h e n t h ed o n o r v a lu e s n o t t h e g e n e r a l w e l fa r e o f t h e r e c ip i e n t, b u t t h e a m o u n to f a rt r ec e iv e d . T h e d o n o r m a y t h in k th a t a d d i t io n a l m u s e u m s a n d a r t

e d u c a t i o n w i l l r e d u c e t h e c r i m e r a t e , i n c r e a s e n a t i o n a l p r e s t i g e , o rm a k e p o s si b l e f u t u r e c u lt u r a l a n d sc i en t if ic a c h i e v e m e n t . O r t h e d o n o rm a y m e r e l y b e p a t e r n a l is t ic a b o u t w h a t t h e r e c i p i e n t o u g h t t o r e c e iv e .T h e r e a s o n th a t U D d e p e n d s o n X R i s e s se n t ia l ly i rr e le v a n t . A l l t h a tm a t t e r s i s t h a t m a n y p o t e n t i a l d o n o r s f e e l b e n e f i ts f r o m r e c i p i e n t s 'a c c e s s t o t h e a r ts . T h e p r i v a te d e c i s i o n t o g iv e a n o t h e r d o l l a r t o t h ea r t s w i ll a c c o u n t f o r o n e ' s o w n v a lu a t i o n o f X R , b u t n o t f o r o t h e rp o t e n t i a l d o n o r s ' b e n e f i t s . T h u s p r i v a t e g iv i n g i s i n s u f fi c ie n t .T h e f a c t th a t a r t a l s o e n t e r s t h e r e c i p i e n t ' s u t il it y i n e q u a t i o n ( 2 )i s n o t n e c e s s a r y t o j u st if y t h e s u b si d y . T h a t i s, e v e n if t h e p o o r c o u l dc a r e l es s a b o u t a r t, p o t e n t i a l d o n o r s c a n m a k e t h e m s e lv e s h a p p i e r b yp a y i n g ta x d o l l a r s to s u p p o r t s u b s i d i z e d p r o v i s io n o f a rt . T h i s j u s ti fi c a -t io n f o r p u b l ic s u p p o r t o f t h e a r t s d o e s n o t a p p e a r i n th e p r e v i o u sl i t e r a t u r e .T h i s j u s ti fi c a ti o n c a n b e f o r m a l iz e d , to h e l p a v o i d m i s u n d e r s t a n d -i n g . L e t m e f i rs t t a k e t h e s i m p l e s t p o s s i b le m o d e l a n d l a t e r d i sc u s sg e n e r a l iT a t i o n s . C o n s i d e r a l a r g e n u m b e r o f d o n o r s (i = 1 , ... N ) , e a c hw i t h u t il it y o v e r j u s t o n e p r i v a te g o o d , Y i, a n d a r t o f r e c i p ie n t s , X R .F o r n o w i g n o r e t h e d o n o r s ' o w n a p p r e c i a t i o n o f a r t a n d t h e u ti li ty o f

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r e c i p ie n t s . E a c h i n d i v id u a l d o n o r m ag lm iT cS Ui(Yi,XR)s u b j e c t t o ab u d g e t . F o r th e s e d o n o r s , h o w e v e r , X R is a p u r e p u b l i c g o o d . I t i sn o n r i v a l b e c a u s e a n y i n d iv i d u a l 's p r o v i si o n o f X R w i ll b e n e f i t a ll Np o t e n t i a l d o n o r s a t n o a d d i t io n a l c o s t. I t i s n o n e x c l u d a b l e b e c a u s e o n ed o n o r c a n n o t c h a r g e o t h e r p o t e n t i a l d o n o r s f o r t h a t b e n e f it . T h i ss im p l e st m o d e l r e d u c e s e x a ctly t o t h e p u b l i c g o o d s p r o b l e m o f S a m u e l -s o n ( 19 5 5 ), w h e r e t h e o p t i m a l so l u t i o n in v o lv e s p r o v i s i o n o f X R u p t oNt h e p o i n t w h e r e t h e s u m o f m a r g i n a l b e n e f it s ( ~ M B i ) is m a t c h e d b y

i f 0m a r g i n a l c o s t ( M C ) .I n f i g u r e 1 , N i d e n t ic a l d o n o r s h a v e m a r g i n a l b e n e f i t s M B i , a n dm a r g i n a l c o st s a r e c o n s t a n t . T h e n t h e o p t i m a l p r o v i s io n i s X R . H o w

f a r e s t h e p r i v a t e m a r k e t ? A n i n d i v id u a l m i g h t p r o v i d e X R 0 , a s lo n g a so w n m a r g i n a l b e n e f it s e x c e e d c o s t , b u t w o u l d i g n o r e b e n e f i t s t o o t h e r sM o r e o v e r , a s s o o n a s o n e i n d iv i d u a l g iv e s X R 0 , n o o t h e r i n d i v i d u a l h a sa n y i n c e n t iv e t o g i v e a t a ll, s in c e t h e i r o w n M B i h a v e f a l le n b e l o w M C .E a c h t ri e s to f r e e - r id e o n t h e g if ts o f o t h e r s . I n t h i s m o d e l , g o v e r n m e n tc a n t a x a ll N d o n o r s , p r o v i d e X R * , a n d m a k e a ll d o n o r s b e t t e r o f f .

$ i J n i t

F i g u r e 1

41"X 0 X R

M C

X R

N o w s u p p o s e i n d iv i d u a l s d i ff e r, a n d t h a t " r e ci p ie n ts " a r e i n c l u d e dw h e t h e r o r n o t t h e y a p p r e c i a te t h e p r o v is io n o f X R . I n t h is c a se t h eS a m u e l s o n s o lu t io n w o u l d s u m o v e r t h e M d i v e rs e p o s it iv e o r n e g a t iv e

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MHi s c h e d u le s to f m d Y M B i . A n y d o n o r o r r e c ip i e n t w h o lik e s XRw o u l d a u g m e n t t h e t o t al , a n y w h o a r e i n d i f fe r e n t w o u l d n o t a f fe c t th et o ta l , a n d a n y w h o d i s li k e X R w o u l d d e t r a c t f r o m t h e t o t al . T h e n X Rs h o u l d b e p r o v i d e d o n l y a s lo n g a s Y M B e x c e e d s M C . I t c a n b ep r o v i d e d d i r e c tl y , o r b y s u b s i d i z i n g in d i v i d u a l g i f ts to t h e a r t s .T h i s s t a n d a r d p u b l i c g o o d s t r e a t m e n t i s s u b j e c t t o a l l o f t h es t a n d a r d p u b l i c g o o d s p r o b l e m s . F i rs t, h o w c a n w e i d e n ti fy f r e er i d e r s ? T h e M B i s c h e d u l e s a r e d i f fi c u lt t o m e a s u r e , e s p e c i a ll y s i n c ea n y s u r v e y e d i n d i v id u a l s w o u l d h a v e n o i n c e n t i v e t o t e ll th e t r u t h a b o u tt h e i r p r e f e r e n c e s . I f t o l d t h e i r t ax e s d o n o t d e p e n d u p o n t h e i rr e s p o n s e , t h o s e w i th p o s it iv e b e n e f i t s w o u l d o v e r s t a t e b e n e f i t s . I f t o l dt h e ir t ax e s d o d e p e n d u p o n t h e i r re s p o n s e , t h e y w o u l d u n d e r s t a t eb e n e f i ts i n a n a t t e m p t to f r e e- r id e . T h i s m e a s u r e m e n t p r o b l e m i s n o ti n s u r m o u n t a b l e , h o w e v e r , a n d i t d o e s n o t i m p l y t h a t t h e b e s t e s t i m a t eo f b e n e f it s i s z e r o . T h e s a m e i m p e r f e c t m e a s u r e m e n t t e c h n i q u e s c o u l db e a p p l i e d t o t h is c a s e f o r t h e a r t s t h a t a r e a p p l i e d t o r o a d s , p a r k s , a n do t h e r p u b l i c g o o d s .S e c o n d , e v e n if t h e s u m o f b e n ef it s e x c e e d s c o st , t h e n e t g a i n m a yb e t o o s m a l l t o j u st if y g o v e r n m e n t a c ti o n . W h y b o t h e r w i th p u b l i ci n v o lv e m e n t i n th e a r t s? T h e a n s w e r t o th i s q u e s t i o n a ls o d e p e n d s o ne m p i r ic a l m e a s u r e s n o t p r o v i d e d h e r e . I n a r e c e n t L o u i s H a r r i s p o ll ,h o w e v e r , 56 p e r c e n t o f A m e r i c a n s e x p r e s s e d w i ll in g n e ss t o p a y $ 25m o r e i n t ax e s e a c h y e a r, a n d 7 0 p e r c e n t t o p a y $ 1 0 m o r e e a c h y e a r , fo rf e d e r a l s p e n d i n g o n t h e a r ts a b o v e a n d b e y o n d c u r r e n t l ev e ls .T h i r d , a g o v e r n m e n t p r o g r a m t o im p o s e ta x a n d p r o v i d e a r t ise s s e n ti a ll y c o e r c i v e . D o e s t h e s u g g e s t e d j u s t if i c a ti o n a m o u n t t o a na s s au l t o n e c o n o m i c a n d p o l i ti ca l f r e e d o m s ? A g a i n th e p r o b l e m i s n od i f f e r e n t fr o m t h a t o f o t h e r p u b l i c g o o d s . I n d i v i d u a l s w i t h f u ll

e c o n o m i c a n d p o li ti ca l f r e e d o m s d o n o t p r o v i d e r o a d s o r p a r k s f o ro t h e r s t o u s e , b u t t h e y c a n i m p r o v e t h e i r o w n w e l f a re b y f o r m i n g ac o e r c iv e g o v e r n m e n t t o ta x a n d p r o v i d e s u c h p u b li c g o o d s . I f th eb e n e f i t s d e s c r i b e d a b o v e f o r th e a r t s a r e s u f f ic i en t , t h e n g o v e r n m e n tc a n p o t e n t ia l ly m a k e e v e r y o n e h a p p i e r b y p r o v i d i n g it .F o u r t h , d o n o r s m a y b e p a t e r n a li s ti c a b o u t m a n y " m e r i t g o o d s. "W h a t i s s o s p e c ia l a b o u t a r t? A s d e s c r i b e d ab o v e , t h e a p p e a r a n c e o fU R i n t h e d o n o r ' s u t il it y f u n c t i o n w o u l d j u s ti f y o n l y c a s h t r a n s f e r s . W e

o b s e r v e m a n y i n - k in d t ra n s fe r s, h o w e v e r , s u c h a s f o o d s t a m p s , f e d e r a lh o u s i n g s u b si d ie s , a n d m e d i c a i d . T h e s e p a r t ic u l a r p r o g r a m s c a n b ej u s t i f ie d b y t h e s a m e a r g u m e n t . T h e c l a im i s t h a t t h e r e l a ti v e ly a f f lu e n t

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c a r e a b o u t t h e r e c i p i e n t s ' n u t ri ti o n , h o u s in g , h e a l t h , a n d a c c e s s t o t h earts.

F i ft h , w h a t j u s ti fi e s a s u b s i d y t o t h e w e a l th y ? A s G r a m p p (1 98 9,pp . 196- 7 ) no t e s :

" W h a t m n s e n m s n o w d o i n t h e i n t e re s t o f t h e p o o r is top r o v i d e fr e e a d m l g s io n a t c e r ta i n ti m e s . V i s i to r s d o n o ta c tu a ll y h a v e t o s h o w t h e i r n e e d b e f o r e b e i n g a d m i tt e d ,a n d t h e r e s u lt is t h a t t h o s e w h o a r e n o t p o o r b e n e f i t a s w e lla s t h o s e w h o ar e. T h e B o s to n M u s e u m o f F i n e A r t s i n1 97 3 h a d f r e e e v e n i n g s . A t t e n d a n c e w a s n o t i c e a b l y h i g h e rt h a n w h e n t h e r e w a s a n a d m i ss io n c h a r g e , a n d t h e c h e c k -r o o m s , a c c o r d i n g t o t h e a t t e n d a n t s , w e r e q u i t e s tu f f e d w i t hm i n k c o a ts ."

I n d e e d , a n y j u s ti fi c a ti o n f o r p u b l ic s u p p o r t o f t h e a r ts t h a t i s b a s e do n h e l p i n g th e p o o r s h o u l d b e d e f in it iv e ly r e je c t e d . M y p r o p o s e dj u s ti fi c a ti o n is a n " e f f ic i e n c / ' a r g u m e n t , i n th a t d o n o r s c a n t a x th e m -s e l v e s , p r o v i d e a c c e s s t o t h e a r t s ( X R , w h e t h e r f o r r i c h o r p o o r ) ,i m p r o v e t h e ir o w n w e l f a re ( s in c e U D d e p e n d s o n X R ) , a n d h a v e n oe f fe c t o n t h e p o o r .F i n a l ly , o f c o u r s e , a d i s tr i b u t i o n a l o b j e c t i o n c a n a r i s e i f t h o s e w h op a y t h e ta x a r e n o t t h e s a m e a s t h o s e w h o b e n e fi t. W h o p a y s a n d w h ob e n e f i t s ? A l l p u b l ic g o o d s f a c e e x a c tl y t h e s a m e p r o b l e m , s i n c eg o v e r n m e n t c a n n o t p i n p o i n t b e n e fi ci ar ie s . T h e r e is n o r e a s o n t o h o l dt h is p u b l i c g o o d t o a h i g h e r s t a n d a r d t h a n o t h e r p u b l i c g o o d s . S till , t h ep r o p o s a l m i g h t b e s t r o n g e r i f i t d i d n o t s y s te m a t i c a ll y t a x e v e r y o n e

( i n c lu d i n g t h e p o o r ) t o p r o v i d e b e n e f i ts to t h o s e w h o l i k e t h e a r t s( e s p e c ia l ly t h e r i c h ). T h e b e s t p r o p o s a l m i g h t t a r g e t a t a x o n t h ew e a l t h y , s in c e t h e y a r e t h e p r i m a r y b e n e f i c ia r ie s . M o r e g e n e r a ll y , t h ec a l c u la t io n s i n F e l d , O ' H a r e a n d S c h u s t e r (1 9 8 3 ) i n d i c a t e t h a t t h o s ew h o n o w p a y f o r t h e a r ts a r e i n t h e s a m e o r s l ig h tly h i g h e r i n c o m eb r a c k e t s a s t h o s e w h o b e n e f it .Conclusion

I n s n m m a r y , t h e r e i s n o o v e r w h e l m i n g a r g u m e n t t o t h e p u b f ics u p p o r t o f t h e a r t s. J u s ti fi c a ti o n s h a v e b e e n p u t f o r w a r d , a s d i s c u s s e di n th i s p a p e r , b u t m o s t h a v e b e e n f o u n d l a c k in g w h e n c o n s i d e r e da n a ly t ic a ll y o r e m p i r ic a l ly i n t h e " rig o ro u s " fr e e m a r k e t f r a m e w o r k o feconomi.~ts .

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Certainly economkts would grant the possibil i ty of a marketfailure such as an externality, wh ere tickets to arts events sho uld besubsidized because at tendan ce helps someo ne other than the at tendee,but the externali ty needs to be demon strated. In part icular, an argu-ment based on such market fai lure involves specifying who elsebenefits . I t has not been dem onstra ted that arts events si~ifican tlyhelp the local or national economy more than w ould al ternative usesof the funds. Also, "future generations" are not external beneficiariesof current attendan ce: if arts events were truly worthwhile in the sen sethat the y could be self-supporting today, the n investme nts in the artswo uld also be profitable for the future.

This pap er suggests a new twist on the externality argum ent. Th eexternal beneficiary is a per son who, for whateve r reason, wants othersto at ten d arts events. This pers on m ay be paternalistic, feeling thatat tendanc e w ould be "good for" them, or m ay merely think there is aneco nom ic benefit or intrinsic value. Th e so urce of the externality isunimportan t . Th e point is just that if enoug h people benefit , in thesense tha t th ey are w illing to p ay to se e subsidized arts, an d if similarindividuals can "free ride" by enjoying others' donations, the n n on e o fthe m has sufficient incentive to give to the arts. It is possible forgovern ment, potentially, to m ake everybody bette r off by ta~dng thoseindividuals who do value others ' at tendance, and then using the fundsto subsidize the arts.

University of VirginiaNote: I a m grateful for fmancial support from an Olin Found ationgrant to the Nat ional Bureau of Economic Research and for helpfulsuggestions from Charles Clotfelter, Martin Feldstein, Edgar Olsen,H ih ry Sigman, and referees. All views expressed are my own.

R e f e r e n c e sAmericans and the Arts V, Louis Harris and Associates, Inc., NewYork: National Rese arch Cen ter for the Arts, 1988.Andrew , William D. "Personal Ded uctions in an Ideal In com e Tax,"

Harvard La w R eview 86, 2, (December, 1972), pp. 309-85.Arrow, Kenneth, qJncertainty and the Welfare Economics of Medical

Care," Am erican Econ om ic R eview 53, (1963), pp . 941-73.Atklnson, Rob, "Pol icy Basis for Tax Exemption of Chari t iesRevisited ," mime,o, Florida State University College of Law (un-dated).

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Banf ie ld, Ed w ard C. The Dem ocrat ic Muse: V i s u a l A r t s a n d t h e P u b l icInteres t , N ew York: B as ic Book, 1984.

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B i t tke r , Bor i s I. a nd G e o r ge K . Ra hd e r t , W he E xe m p t ion o f N onpr o f itOrganiTations from F ed era l Incom e Taxat ion," Y a l e L a w J o u rn a l85, (197 6), pp . 299-358.B ucha nan , Jam es M . and W i ll i am C. S tubbleb ine , 'Exte rn a l i ty , 'E c o n o m i c a 2 9 , (Novem ber, 1962) , pp . 371-84.Daly , G eorge and Fred Gie r tz , W Celfare Economics and W el fa reR eform , "Am erican E c o n o m i c R e vi ew 62 (M arch, 1972) , pp . 131-38.F e ld , A la n L . , Mic ha e l O ' H a r e , a nd J . Ma r k D a v ids on S c hus t e rPa t r ons D es p i te Them s e lves : Taxpayer s a n d A r t s Po l i cy , N ewYork: New Y ork U niver s ity P ress , 1983.G ingr ich, A rnold, B usiness a n d th e A r ts , A n A n s w e r t o T o m o rr ow , N ewYork: Pau l S . Er iksson , 1969.G ood s pe e d , T im othy J . a nd D a phn e A . K e nyon , " T he N on pr o f itSec tor ' s Capi ta l Cons tr aint : D oes i t P rovide a Ra t ion a le for theT a x - E x e m p t i o n G r a n t e d t o N o n p r o f i t F i r m s ? ' m i m e o , U . S .Treasury, 1988.G r a m pp , W i ll ia m D . Pr ic ing the Price les s: Ar t , Ar t i s ts , a n d Ec on om ics ,

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