Chapter 15: Costs of Production
Mervi Taalas The seminal study by Baumol and Bowen (1966) introduced the theory of production to cultural economics. Since then there has been continued interest in applying the framework of production theory in analyses of cultural services. However, compared to the proliferation of other approaches, the interest in production theory has remained relatively limited among cultural economists. As to theoretical modelling, there is very little tradition of analysing production of cultural services in particular. The likely reason for this is the similarity of production of cultural services to production of other types of services: at the level of theoretical modelling, production of cultural services is difficult to differentiate from other types of services. For example, information asymmetries, monopolistic provision and difficulties of defining the quality of production riddle most analyses of the production of services. The limited interest in empirical analysis of production stems mainly from two factors. First, there are fewer high-quality data sets available on production of cultural services than, let us say, banking or production of energy. The other problem is related to finding appropriate measures for analysis. Selecting measures for output and inputs in cultural services is often a complex problem. In sum, analyses based on the theory of production have remained relatively marginal in cultural economics. Given the insights the analyses could provide into characteristics of production, this is surprising, particularly as the analyses could cast light on to topical policy questions related, for example, to efficiency, optimal input utilization and optimal output mix. This...
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