Is theatre efficiency affected by the legal form type? A case study of German public theatres

The paper aims at exploring the economic efficiency of the performing arts organisations. A parametric stochastic frontier approach is presented as a way of measuring the performance of cultural institutions. In particular, using German public theatres as a case study and summarising the empirical findings obtained in Zieba and Newman (2013), this paper examines how the efficiency of publicly funded performing arts firms, operating under different organisational structures, is affected by two types of shocks. First, we consider what happens to efficiency when there is a funding shock and second, we consider the effect on efficiency of an increase in competition. The identification of these effects was made possible by the natural experiment of the reunification of East and West Germany in 1990. The results suggest that theatres organised under public law are more efficient than theatres organised under private law. However, when exposed to the exogenous demand shock after reunification, the theatres organised under private law react positively to this competition shock as measured by their efficiency scores confirming that they better react to the changing market conditions than theatres organised as public legal forms.