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Optimal Pricing And Grant Policies For Museums

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  • Juan Prieto-Rodriguez

    (University of Oviedo & IEF)

  • Victor Fernandez-Blanco

    (University of Oviedo)

Abstract

Considering two potential sources of income (public grants and ticket revenues),we have defined a theoretical model where the public agency is the principal and the manager of the museum is the agent. This model allows us to design the optimal contract between both sides and thus to establish the optimal values of grants, ticket prices, budget and effort applied by the manager. Furthermore, we have found a theoretical reason to explain the inelastic pricing strategy that has been found in some of the empirical research on cultural and sports economics. The main conclusion is that the optimal contract allows a Pareto optimum solution in prices that does not change if we introduce moral hazard into this relationship. This solution allows us to conclude that the public agency should regulate ticket prices in accordance with the social valuation. However, public grants and museum budgets would be affected by the existence of this problem, moving the equilibrium away from the Pareto optimum situation. In this case, even with a risk averse manager and a risk neutral public agency, grants and budgets will depend on results because higher budgets related to good results provide the main incentives to increase the manager’s level of effort. Although the focus of this paper is on museum administration, the model that we have developed can be easily generalized and applied to other institutions, such as schools, sport facilities or NGOs, which are able to raise funds directly from private (e. g. ticket revenues or membership fees) or public sources (e.g. public grants).

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File URL: http://128.118.178.162/eps/pe/papers/0309/0309002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Public Economics with number 0309002.

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Date of creation: 13 Sep 2003
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Handle: RePEc:wpa:wuwppe:0309002

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Web page: http://128.118.178.162

Related research

Keywords: cultural economics; grants; public prices; museums; principal- agent model;

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References

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  1. Peter Johnson & Barry Thomas, 1998. "The Economics of Museums: A Research Perspective," Journal of Cultural Economics, Springer, vol. 22(2), pages 75-85, June.
  2. Frey, Bruno S. & Meier, Stephan, 2006. "The Economics of Museums," Handbook of the Economics of Art and Culture, Elsevier.
  3. Jorge Onrubia & Rafael Salas & José Sanz, 2005. "Redistribution and labour supply," Journal of Economic Inequality, Springer, vol. 3(2), pages 109-124, August.
  4. William Luksetich & Mark Partridge, 1997. "Demand functions for museum services," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1553-1559.
  5. Stephen Bailey & Peter Falconer, 1998. "Charging for Admission to Museums and Galleries: A Framework for Analysing the Impact on Access," Journal of Cultural Economics, Springer, vol. 22(2), pages 167-177, June.
  6. Heilbrun,James & Gray,Charles M., 2001. "The Economics of Art and Culture," Cambridge Books, Cambridge University Press, number 9780521637121, October.
  7. Macho-Stadler, Ines & Perez-Castrillo, J. David, 2001. "An Introduction to the Economics of Information: Incentives and Contracts," OUP Catalogue, Oxford University Press, edition 2, number 9780199243273.
  8. Adrian Darnell, 1998. "Some Simple Analytics of Access and Revenue Targets," Journal of Cultural Economics, Springer, vol. 22(2), pages 189-196, June.
  9. Daniel R. Marburger, 1997. "Optimal ticket pricing for performance goods," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(5), pages 375-381.
  10. Luis Ayala & Rosa Martínez & Jesús Ruiz Huerta, 2003. "Equivalence scales in tax and transfer policies," Investigaciones Economicas, Fundación SEPI, vol. 27(3), pages 593-614, September.
  11. Juan Prieto-Rodríguez & Víctor Fernández-Blanco, 2006. "Optimal pricing and grant policies for museums," Journal of Cultural Economics, Springer, vol. 30(3), pages 169-181, December.
  12. Juan Gabriel Rodríguez & Rafael Salas, 2004. "A Bistochastic Nonparametric Estimator," Economic Working Papers at Centro de Estudios Andaluces E2004/22, Centro de Estudios Andaluces.
  13. John W. O'Hagan, 1995. "National Museums: To Charge or not to charge?," Economics Policy Papers 952, Trinity College Dublin, Department of Economics.
  14. David Maddison & Terry Foster, 2003. "Valuing congestion costs in the British Museum," Oxford Economic Papers, Oxford University Press, vol. 55(1), pages 173-190, January.
  15. Frey, Bruno S, 1994. "Cultural Economics and Museum Behaviour," Scottish Journal of Political Economy, Scottish Economic Society, vol. 41(3), pages 325-35, August.
  16. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
  17. David Maddison, 2004. "Causality and Museum Subsidies," Journal of Cultural Economics, Springer, vol. 28(2), pages 89-108, May.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Vstopnine v muzeje da ali ne?
    by andee in V krizi smisla tiči misel on 2010-12-03 12:00:00
  2. Weekly report (Od bedaka do junaka)
    by andee in V krizi smisla tiči misel on 2011-10-08 12:00:00
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Cited by:
  1. Douglas Noonan, 2007. "Fiscal pressures, institutional context, and constituents: a dynamic model of states’ arts agency appropriations," Journal of Cultural Economics, Springer, vol. 31(4), pages 293-310, December.
  2. Frey, Bruno S. & Meier, Stephan, 2006. "The Economics of Museums," Handbook of the Economics of Art and Culture, Elsevier.
  3. Juan Prieto-Rodríguez & Rafael Salas & Santiago Álvarez-García, . "The Evolution Of Income Inequality In The European Union," Working Papers 10-02 Classification-JEL , Instituto de Estudios Fiscales.
  4. Bruno S. Frey & Lasse Steiner, 2010. "Pay as you Go: A New Proposal for Museum Pricing," CESifo Working Paper Series 3045, CESifo Group Munich.
  5. Juan Prieto-Rodríguez & Víctor Fernández-Blanco, 2006. "Optimal pricing and grant policies for museums," Journal of Cultural Economics, Springer, vol. 30(3), pages 169-181, December.
  6. João Coelho & Carlos Santos, 2008. "The Budgeting of Portuguese Public Museums: a dynamic panel data analysis," Working Papers de Economia (Economics Working Papers) 032008, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
  7. Eva Vicente & Pablo de Frutos, 2011. "Application of the travel cost method to estimate the economic value of cultural goods: Blockbuster art exhibitions," Hacienda Pública Española, IEF, vol. 196(1), pages 37-63, january.

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