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Optimal Pricing And Grant Policies For Museums

  • Juan Prieto Rodríguez


    (Universidad de Oviedo)

  • Víctor Fernández Blanco


    (Universidad de Oviedo)

. 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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Paper provided by Instituto de Estudios Fiscales in its series Working Papers with number 3-02 Classification-JEL : C70, D80, H20, H42, Z10.

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Handle: RePEc:hpe:wpaper:y:2002:i:3
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  1. 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.
  2. 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.
  3. 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 9780199243259, July.
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  8. Frey, Bruno S. & Meier, Stephan, 2006. "The Economics of Museums," Handbook of the Economics of Art and Culture, Elsevier.
  9. Juan Prieto Rodríguez & Víctor Fernández Blanco, . "Optimal Pricing And Grant Policies For Museums," Working Papers 3-02 Classification-JEL :, Instituto de Estudios Fiscales.
  10. 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.
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  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. William Luksetich & Mark Partridge, 1997. "Demand functions for museum services," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1553-1559.
  15. Daniel R. Marburger, 1997. "Optimal ticket pricing for performance goods," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(5), pages 375-381.
  16. Peter Johnson & Barry Thomas, 1998. "The Economics of Museums: A Research Perspective," Journal of Cultural Economics, Springer, vol. 22(2), pages 75-85, June.
  17. 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.
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