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Baumol’s Cost-Disease, Efficiency, and Productivity in the Performing Arts: An Analysis of German Public Theaters


  • Anne-Kathrin Last

    () (Institute of Economics, Leuphana University of Lüneburg, Germany)

  • Heike Wetzel

    () (University of Cologne, Department of Economics, Endowed Chair of Energy Economics, Affiliated Researcher of the Institute of Energy Economics (EWI))


This paper analyzes the productivity development in the German public theater sector for the seasons 1991/1992-2005/2006. Using a stochastic distance frontier approach that allows to decompose total factor productivity change into different sources we examine (a) whether Baumol’s cost-disease hypothesis is valid in this sector and (b) if so, whether its negative influence on productivity can be compensated by efficiency gains. The findings indicate an increase in real unit labor cost as a result of rising wage rates and, thus, support the cost- disease hypothesis. Furthermore, increasing returns to scale are observed for the majority of the theaters which implies that significant efficiency gains can be realized by the exploitation of scale economies. However, because of the increasing unit labor cost and an increasing scale inefficiency we find an overall decrease in average productivity of about 8 percent within the sample period.

Suggested Citation

  • Anne-Kathrin Last & Heike Wetzel, 2010. "Baumol’s Cost-Disease, Efficiency, and Productivity in the Performing Arts: An Analysis of German Public Theaters," Working Paper Series in Economics 173, University of Lüneburg, Institute of Economics.
  • Handle: RePEc:lue:wpaper:173

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    References listed on IDEAS

    1. Anne-Kathrin Last & Heike Wetzel, 2010. "The efficiency of German public theaters: a stochastic frontier analysis approach," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 34(2), pages 89-110, May.
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    6. David Saal & David Parker & Tom Weyman-Jones, 2007. "Determining the contribution of technical change, efficiency change and scale change to productivity growth in the privatized English and Welsh water and sewerage industry: 1985–2000," Journal of Productivity Analysis, Springer, vol. 28(1), pages 127-139, October.
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    8. Luis Orea, 2002. "Parametric Decomposition of a Generalized Malmquist Productivity Index," Journal of Productivity Analysis, Springer, vol. 18(1), pages 5-22, July.
    9. Frey, Bruno S., 1996. "Has Baumol's Cost Disease disappeared in the performing arts?," Ricerche Economiche, Elsevier, vol. 50(2), pages 173-182, June.
    10. Mervi Taalas, 1997. "Generalised Cost Functions for Producers of Performing Arts – Allocative Inefficiencies and Scale Economies in Theatres," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 21(4), pages 335-353, December.
    11. Roberto Fazioli & Massimo Filippini, 1997. "Cost Structure and Product Mix of Local Public Theatres," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 21(1), pages 77-86, March.
    12. Throsby, David, 1994. "The Production and Consumption of the Arts: A View of Cultural Economics," Journal of Economic Literature, American Economic Association, vol. 32(1), pages 1-29, March.
    13. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
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    15. Mehdi Farsi & Massimo Filippini & William Greene, 2006. "Application Of Panel Data Models In Benchmarking Analysis Of The Electricity Distribution Sector ," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 77(3), pages 271-290, September.
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    Cited by:

    1. Víctor Fernández-Blanco & Ana Rodríguez-à lvarez & Aleksandra Wiśniewska, 2017. "Measuring Technical Efficiency and Marginal Costs in the Performing Arts: The Case of the Municipal Theatres of Warsaw," ACEI Working Paper Series AWP-09-2017, Association for Cultural Economics International, revised Oct 2017.
    2. Victor Fernandez-Blanco & Ana Rodriguez-Alvarez, 2015. "Measuring allocative efficiency in cultural economics: The case of Fundacion Princesa de Asturias," ACEI Working Paper Series AWP-09-2015, Association for Cultural Economics International, revised Oct 2015.
    3. Milton Marquis, 2013. "Bringing Culture to Macroeconomics," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 41(3), pages 301-315, September.
    4. Pang, Rui-Zhi & Deng, Zhong-Qi & Hu, Jin-li, 2015. "Clean energy use and total-factor efficiencies: An international comparison," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 1158-1171.
    5. repec:kap:jculte:v:42:y:2018:i:1:d:10.1007_s10824-016-9287-4 is not listed on IDEAS

    More about this item


    Public theaters; cost-disease; efficiency; stochastic frontier analysis;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Z10 - Other Special Topics - - Cultural Economics - - - General


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