Table of Contents

A Handbook of Cultural Economics, Second Edition

A Handbook of Cultural Economics, Second Edition

Elgar original reference

Edited by Ruth Towse

The second edition of this widely acclaimed and extensively cited collection of original contributions by specialist authors reflects changes in the field of cultural economics over the last eight years. Thoroughly revised chapters alongside new topics and contributors bring the Handbook up to date, taking into account new research, literature and the impact of new technologies in the creative industries.

Chapter 10: Baumol’s Cost Disease

James Heilbrun

Subjects: economics and finance, cultural economics, intellectual property, public sector economics


James Heilbrun In 1966, William J. Baumol and William G. Bowen published Performing Arts: The Economic Dilemma. Their book was extraordinarily influential and it is generally agreed that analysis of the economics of the arts had its origin in that work. The economic dilemma Baumol and Bowen referred to was the problem of financing the performing arts in the face of ineluctably rising unit costs. These, they argued, are the result of ‘productivity lag’. The resulting cost pressure has come to be known as ‘Baumol’s cost disease’. Productivity is defined by economists as physical output per work hour. Increases in productivity over time may occur for the following reasons: (1) increased capital per worker, (2) improved technology, (3) increased labour skill, (4) better management, and (5) economies of scale as output rises. As this list suggests, increases in productivity are most readily achieved in industries that use of a lot of machinery and equipment. In such industries output per worker can be increased either by using more machinery or by investing in new equipment that embodies improved technology. As a result, in the typical manufacturing industry the amount of labour time needed to produce a physical unit of output declines dramatically decade after decade. The live performing arts are at the other end of the spectrum. Machinery, equipment and technology play only a small role in their production process and, in any case, change very little over time. That is not to say that technological improvements are entirely absent. For...