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Artfilms, Handicrafts and Other Cultural Goods: The Case for Subsidy

  • Aubert, Cècile
  • Bardhan, Pranab
  • Dayton-Johnson, Jeff

Though widespread, the practice of public subsidies for cultural activity lacks a rigorous and consistent economic rationale. We analyze a canonical market structure that characterizes much cultural activity: the competition of mass-produced goods with heterogeneous non-standardized goods that are imperfect substitutes. We analyze several types of market failure: uncertainty about preferences (we don’t know what we like, and we don’t know what we might like in the future); endogeneity of preferences (we like what our neighbors talk about, and we like what we’re accustomed to); and externalities associated with production (future production costs are determined by current production). The model provides a basis for cultural subsidies to promote social welfare and economic development.

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Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt62n4f3bh.

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Date of creation: 23 Nov 2003
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Handle: RePEc:cdl:econwp:qt62n4f3bh
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