Journal of Cultural Economics 22: 7585, 1998. 1998 Kluwer Academic Publishers. Printed in the Netherlands.

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The Economics of Museums: A Research Perspective

PETER JOHNSON and BARRY THOMAS
Department of Economics, University of Durham, Durham, U.K. Abstract. This paper examines the contribution economic analysis can make to the study of museums as productive organisations, and considers some related policy issues. The paper also suggests areas where research by economists might prove most fruitful. Key words: museum economics, museums policy

1. Museums as a Topic for Economic Study Museums which for the purposes of this issue, embrace art galleries are major repositories of a countrys stock of objects and specimens of educational and cultural value. Many of them are research institutions in their own right and provide raw material for visiting researchers. They also play an important and growing role as visitor attractions: in the U.K. for example, the tourist authorities estimate that the 1718 museums on their data base attracted around 80 million visits in 1996,1 and that the number of visits grew by 11 per cent between 1989 and 1996.2 Estimates of income elasticities (Darnell et al., 1990, 1998) suggest that numbers of museum visitors are likely to grow at a faster rate than per capita incomes. Museums then are signicant institutions, and they use substantial amounts of labour and capital in performing their tasks. Since these resources mostly have alternative uses, economic analysis is clearly relevant to an understanding and evaluation of museum operations and activities. Museums may be viewed as productive units rms which, in order to achieve certain objectives, engage in the transformation, via a production technology, of inputs into a mix of outputs that are valued by others. As such, they raise key questions about how the choice of objectives is determined and how different objectives relate to each other; how decisions are reached on what mix of outputs (e.g. conservation, documentation, display, education, entertainment, shopping facilities and so on) to produce; the efciency with which the different outputs are produced; the nature and determinants of demand; and how museums relate to each other in the market place for nance (both public and private) and visitors. Then there are economic issues relating to policy towards museums: what is the justication for such policy and how might its effects be measured? Clearly the contribution of economics to an understanding of

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museums must be put alongside perspectives of other disciplines. However, the search for general principles, and for formalisation, which often underpins the economic approach, provides a distinctive perspective. Notwithstanding the issues that they raise, museums have not been for understandable reasons a priority area of study for economists. At the same time however, there is a well established tradition going back at least to Jevons (1883)3 of economists, many of them of considerable eminence, writing on museums, sometimes in the broader context of the economics of heritage, culture or the arts.4 Recent years have seen a much greater interest in these areas, and it was against this background, and to generate yet further interest, that a conference on the Economics of Museums, was convened at Durham University in March 1998. The other papers in this issue were all presented at this conference. In this Introduction we sketch out some of the more interesting economic features of museums, drawing on the papers that follow as appropriate. Inevitably some selectivity in the choice of topics is necessary. We look rst at museums as productive organisations. We then consider some policy issues. We conclude with some suggestions for future research.

2. Museums as Productive Organisations A logical starting point for our discussion is the objective function of museums: what are they trying to do? The answer to this question depends on whom you ask.5 For some museum professionals and funders, the extension, conservation and documentation of, and research into, the collection are everything.6 For others, education of the public, and maximising access may be key objectives. Economists have relatively little to contribute to the discussion of what are the proper objectives and outputs of museums but they can examine the implications of different objectives and possible conicts between them. An obvious example of such a conict concerns the relationship between an access objective and other objectives. A zero price maximises access, but it may reduce the funding available for other objectives such as conservation, display, research and education. Adrian Darnells contribution (pp. 189196) helps to clarify the precise nature of the potential conict between access and the provision of funds. Any consideration of how objectives are to met, and how different objectives may conict, requires some knowledge rst, of the nature and measurement of museum output, and secondly, of the nature of the cost function. There are a several special features of museum output that deserve mention. First, most museums offer a diversied output. The mix as Michael Hutter (pp. 99112) has pointed out in respect of art museums changes over time. Second, museums are producing not only for the current generation but also for future generations, who cannot themselves express a market preference. Conservation of the current stock of heritage for future consumption may therefore be categorised as output. The difculty of course arises over what to conserve, given that future generations have no direct

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means of making their preferences known, and given that limited resources mean that not everything can be conserved.7 Thirdly, the visitor experience the most obvious form of museum output consists of a bundle of services, including not only the viewing and engaging with artefacts, pictures, and buildings, but also ancillary services such as catering, car parking and retailing. How the bundle is put together, and the proportion in which the different elements are combined, may be crucial for determining visitor enjoyment. It is important too to recognise that visitors may gain utility from their visit both prior to, and after, the actual period in which they make their visit. This is not just an academic point. The incidence of repeat visiting for example is likely to be strongly affected by the time prole of post visit enjoyment of visitors.8 In any analysis of visitor utility from museum visiting, the assumption that tastes are given is inappropriate. Museums are themselves likely to play an important role in fashioning and developing those tastes. Some forms of museum output may act as a substitute for a visit. For example, videos, tapes, and publications based on the museums collections can reach a far wider audience than is possible via the turnstiles. They may also provide a lucrative source of income (It is interesting that the debate over charging does not seem to extend to these forms of output). This is likely to become a more important issue in the future as changes in information and communications technology make virtual access to museums more common. Michael Hutter (pp. 99112) addresses some of these issues in greater depth. A limited amount of work has been done on museum cost functions (Jackson, 1988). Of particular interest for the economic analyst is the way in which costs may vary with changes in different types of output, and with substitution between labour and capital. One cost issue that has attracted considerable attention is the valuation of a museums collection. Many museums have not fully catalogued their collection, let alone attempted to value it. There are of course immense problems in estimating market values for some items or for the entire collection,9 but the absence of this information means that the museum is involved in making allocation decisions without key information. Some valuation mechanism is required if allocation decisions are to have a transparent basis, and are not to be the sole preserve of experts. Frey and Pommerehne (1989, p. 72) have argued that museum directors may have a management interest in not valuing their stock, as such a process would make them more vulnerable to external performance appraisal, and reduce their freedom to allocate resources on their own criteria. Valuing the collection and indeed the cost of keeping and servicing it would help to highlight the resource implications of the relatively low proportion of the typical museums stock that is on display at any given time.10 One characteristic of museum operations that has important implications for costs is the contribution of volunteers. Such individuals are particularly important in the private museums sector. The economically interesting characteristic of mu-

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seum volunteers is that they receive utility from the production process itself: they are both consumers and producers. Another inuence on the costs of producing museum output is the way in which production is organised and the structure of contracts that underpins the productive process. In several countries the denition of a museum which is adopted by organisations of museum professionals11 assumes that this process is totally vertically integrated, with collection through to display being within the remit of one organisation. Yet it does not necessarily follow that this is the most efcient way of structuring museum activities, and there is usually no technical reason why this should be the case. Museums are not immune from the forces of competition. On the nance side, they compete for the limited public funding and private benefactions that are available. Their visitor numbers are also likely to be affected by what other museums, and possibly other visitor attractions, are doing. Even if a museums management does not itself believe in giving a high priority to visitor numbers, it will know that providers of public funds are likely to take account of such numbers, and that visitors are an important source of funds. There are at least three aspects of competition that are worth exploring. First, there is evidence that museum visitor numbers are affected by a product life cycle (see for example Johnson and Thomas, 1991). Fashions and tastes change. No museum has a divine right to a continuing ow of visitors; unless a museum adapts through time, it is unlikely to maintain its visitor attractiveness. Secondly, innovations, of both a technological and non technological character, are constantly impinging on museum operations. Michael Hutter (pp. 99112) provides some examples of such innovation. Again, it is not possible for a museum to stand aside from such developments on the supply side without eventually experiencing an impact on its visitor numbers. Unfortunately we know very little about the innovation and diffusion process in museums. Finally, new entry is an important phenomenon in the museums sector: in the U.K. for example, nearly 44 per cent of private museums were opened after 1980.12 Most of these are very small operations, and are run on a nancial shoe string, but taken together, they represent an important source of competition for established museums. There have of course also been a number of major publicly funded new museums opened in recent years, and these will also impact on existing museums. The effects may not always be negative: new developments may sometimes enable a critical mass to be achieved which in turn benets established museums. Bruno Freys paper (pp. 113125) raises another important aspect of competition. He argues that certain museums have achieved superstar status. The drawing power of these museums is immense out of all proportion, to intrinsic superiority in quality and has important implications, both positive and negative, for related but lesser known museums. The notion of the superstar museums now needs to be subject to careful empirical test.

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3. Some Policy Issues There are two main strands of policy concerns relating to museums. The rst stems from the role of public funding of museums, and the second from the regulatory role of government. The public funding of museums goes back a long way: in the U.K., for example, the 1845 Museums Act permitted large boroughs to levy rates to provide museum services. Data presented by Stephen Creigh-Tyte and Sara Selwood (pp. 151 165) show that U.K. central government expenditure on museums and galleries in 1996/1997 was 272 m. Local authorities spent 111 m. The national museums rely for a signicant part of their income on public funding: about 53 per cent of their total incomes is grant in aid (DCMS, 1998, pp. 7893), although there are growing pressures for these museums to generate more funds themselves. We cannot here enter into a full examination of the justication for public funding. It is fair to say however that there is relatively little careful research on the determinants and effects of such funding for museums, even though the presence of extensive externalities is often cited as a justication for public support. We are for example surprisingly ignorant of the interrelationship between public funding and other sources of nance. If a museum raises its own revenues, e.g. via admission charges or ancillary activities, how do government agencies respond? If public funding is cut, how do private benefactors respond? One related area that has been much debated and analysed is the impact of charges. The paper by Stephen Bailey and Peter Falconer (pp. 167177) provides a good summary of the key arguments on both sides of the debate, and Robert Anderson, Director of the British Museum, offers a strong defence of free entry (pp. 179187). The issue is far from straightforward, not least because of the possible impact of admission income on the quality of the museum. If charging raises the funds available to the museum management, the quality of the visitor experience may improve. This in turn may increase the visitor ow, an increase which would offset any decline caused by the introduction or increase in admission charges. Of course, the big question is how far any increase in income from admissions translates into a net increase in a museums income. Admission income and other sources of income may be directly related. We have already raised the possibility that public funding could be cut in response to increased income from admissions. There is however also a potential effect on private donations (in cash or in kind) donors may be less willing to provide funds where admission charges are introduced or raised and on other income earning activities, such as catering and retailing. The debate on charging and access now needs to move on from often simplistic descriptive comparisons of changes in visitor ows in charging and non charging museums, to more careful modelling of the relationship, taking into account the kinds of issues outlined above.

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A further policy issue relating to public funding concerns the most appropriate organisational form for achieving policy objectives. Mark Schuster points out in his paper (pp. 127150), that in recent years a number of hybrid organisational types, straddling the public and private domains, have emerged in the U.S. museums sector. It would be instructive to explore the way in which these different types have affected the efciency of the productive process in the museums sector. Policy issues arising from the regulatory framework include the effects of the museums registration schemes introduced by such bodies as the Museums and Galleries Commission in the U.K. While these schemes may help to maintain professional standards, they may also have the effect of reducing new entry, since edgling museums may be unable to meet the costs of registration,13 and as a result nd it difcult to raise public or private sponsorship. Another policy relevant aspect of the regulatory environment, broadly interpreted, concerns the power of museums to deaccession, ie sell off, their stock. John OHagans paper (pp. 197207) examines this issue. Many paintings and artefacts donated to museums are given on the condition that the receiving museums will not dispose of them, and that they will be properly maintained. This in turn may impose signicant burdens on a museum which may nd itself saddled with the conservation costs of an item for which it has no use. These problems usually only emerge a signicant time after the acquisition when typically, the particular management involved in securing the donation, and perhaps obtaining considerable acclaim in the process, has long since disappeared. There are clearly many advantages in being able to restructure the collection portfolio, by sales and purchases. These advantages may however be offset by the adverse impact such activities may have on the ow of donations. Interestingly, John OHagan points out that deaccessioning is much more prevalent in the U.S., suggesting that given the right culture, a more relaxed stance is possible.

4. The Economics of Museums: The Future We have already argued that museum visiting is likely to grow in importance as incomes increase. Greater leisure time will also reinforce that trend, as well as providing a stimulus for new, specialist museums, perhaps relying on volunteer labour, to be set up. Museums do of course compete in a market place for visitors: whether they like it or not, they are not isolated from the activities of other attractions, such as historic houses, theme parks and gardens, or from the pull of other claims on leisure time and expenditure, such as sport, TV watching or DIY. But the evidence suggests that they are well able to hold their own provided they respond to demand and supply side changes. It should be emphasised again that technological developments in information and communications give museums a much wider market than that dened by those who physically visit the museum premises.

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As far as a research agenda into the economics of museums is concerned, there is a need to move on from general arguments and descriptive sketches to further development of theoretical models of the behaviour of museums and to careful empirical work on a range of issues. Over the last few years, the admission charging debate has tended to dominate the economic analysis of museums. The main issues in this debate have now been thoroughly aired. If this topic is to be retained on the research agenda, it is necessary to move on to more formal modelling, which embraces a fuller treatment of consumer motivations, museum management objectives and public choice considerations. Beyond pricing, there is a large number of topics that would repay investigation. Many of these topics have been extensively researched in the context of the conventional rm but little consideration has been given to them in the museums eld, where most organisations operate on a not-for-prot basis. The need for such a widening of perspective on productive activity is likely to become increasingly pressing, as greater not-for-prot activity not only in the museums sector, but also elsewhere is undertaken as incomes grow.14 One set of possible research themes relates to museum operations and structure. Firstly, there is the issue of innovation and its diffusion within the museums sector. Innovation may include new technological developments in, for example, conservation and display techniques, new ways of managing visitors and organising displays, and in information and communication. Who adopts rst and why? What determines the rate of inter and intra museum diffusion, why might this rate differ across innovations, and what are the implications for costs and revenues of adopting innovations? One important aspect of innovation is the development of new museums. A countrys heritage is not xed. Its boundaries are in a constant process of change, as new areas for conservation are explored and tried against visitor (and donor) demand.15 As Peacock (1995) has reminded us, a large proportion of artefacts were not produced in the rst place with the object of reminding us of our past. These artefacts become a formal part of our heritage as action is taken to conserve them. New museums are likely to play a signicant role in redening heritage boundaries.16 What factors affect the formation rate of museums across space, time and subject area, and how do new museums affect existing ones? How important are new museums as conduits for innovation, in terms either of the subject areas covered or the way in which museum activities are carried out? What factors affect their probability of survival? There is now a very substantial literature on the economics of rm formation in the private sector, much of which may be of relevance, with adaptation, to museums. Secondly, the determinants of museum growth would repay study. Why do museums vary in their growth rates? A key prior question here is how growth should be measured. Different measures might yield different results. Visitor numbers, the most obvious measure of growth, do of course represent only one dimension of a museums growth.

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Thirdly, more attention might be paid to the museums production function, and in particular to the role played by volunteers. Donations of money and items for the collections have been studied to a far greater extent than donations of labour. There is some literature on the supply of volunteers but much less on the demand for such labour and the costs of employing volunteers. A second broad theme for future research might be the nature of museum demand. Although some studies of visitor demand for individual museums have been undertaken, lack of data has meant that they have not been able to explore the impact of some important factors, e.g. marketing, or the interrelationships between different museums visitor ows, or the demand for different products (e.g. blockbuster exhibitions). Where museum entry is free or subsidised, estimates of visitors valuation of their visits, through, for example, contingent valuation studies, would be valuable. There are also wider issues about the formation of tastes. Mel Grays paper (pp. 8798) for example shows (perhaps not surprisingly) that exposure to art in childhood makes individuals more likely to visit art museums in later life. It is not at all clear what the policy implications of this nding are,17 but the study does highlight the long term inuences that may be affecting current museum demand, and which need to be taken into account in any attempt to analyse that demand. So far we have only considered turnstile demand for museums. But the scale of existence and option demand may also be signicant, especially where a museum is a repository of regional or national treasures. How important are these forms of demand, and to what extent might they be expressed through donations in money or kind? Similarly, as already noted, distant consumption of some museum products becomes a greater possibility with technological advances which allow images, data and clones to be accessed remotely.18 A nal set of issues for future research relates to policy towards museums. We know very little about the interrelationships between different forms of funding. In the U.K., the advent of the National Lottery further underlines the importance of this topic. Does public funding, from whatever source reduce or increase private funding through, for example donations? If a museum raises its own income, e.g. by increasing admission charges or its ancillary activities, how does government react? Then there are broader issues about the role of government funding. What kinds of returns does such funding generate in different contexts? Critical here are the scale and nature of the externalities generated by museums. As our own preliminary consideration of the impact of museum educational services (Johnson and Thomas, 1995) suggests, there are very substantial measurement challenges here, but there is little doubt that progress could be made. There are also fundamental management questions relating to public funding. For example, who should be making the decisions on the scale and distribution of public funding? What role should experts and professionals play in this function? Again, what is the best organisational context for making decisions on grants, or for running

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publicly funded institutions? What are the organisational efciency implications of the hybrid institutions described by Mark Schuster (pp. 127150)? It is beyond the scope of economics to provide insights or advice on societys cultural objectives and the purposes and outputs of museums. But there is a clear role for economics in dealing with the costs of museums and the efciency with which different outputs are produced and we have said enough to indicate that there is no shortage of research topics for the economist interested in museums. Hopefully, the growing interest in cultural economics generally, and in heritage in particular, will ensure that some of this work will be carried out sooner rather than later. The papers in this issue are all related, to a greater or lesser degree, to the topics identied in the preceding discussion on the future of museums.

Notes
1. For estimates from other sources see the paper by Stephen Creigh-Tyte and Sara Selwood (1998, this issue, pp. 151165). 2. On a year-to-year constant sample basis. 3. Keynes, writing in 1933, (Keynes, 1972, p. 144 fn.) commented that Jevonss piece . . . deserves to be read today. 4. It is not possible here to provide a comprehensive review of the relevant literature. However Frey and Pommerehne (1989); Feldstein (1991); Heilbrun and Gray (1993); Peacock (1995) and Frey (1994) provide a good general avour of work in this area. Specic issues in the economics of museums that have been analysed in recent years, include cost functions (e.g. Jackson, 1988); demand analysis (e.g. Ashworth and Johnson, 1996; Darnell et al., 1998); economic impact studies (e.g. Johnson and Thomas, 1992); museum purchasing (Pommerehne and Feld, 1997); and pricing (e.g. Bailey, 1998, this issue; Steiner, 1997). It is probably fair to say however that very few economists owe their academic reputations to their work in the economics of museums. Either they have developed an interest in them as a sideline to their more mainstream research, or they have turned to them later in their careers. 5. For a discussion of the different constituencies with interests in museums, see Jackson (1991). 6. In the words of the U.K.s Museums Association (no date, para. 3.1) the collections are the very core of a museums role and existence. The integrity and development of the collections are therefore the prime responsibilities of the museum professional. 7. One response to the challenge of the unknown nature of the preferences of future generations is to try and collect everything within a given eld: for an example of such a catholic collecting policy, see Johnson and Thomas (1992, pp. 1617). 8. Repeat visits may sometimes make up a substantial proportion of all visits made in a given period. For example, in June 1993, the latest month for which gures are available, 49 per cent of visitors to the British Museum had been before (Caygill and Leese, 1994). 9. Market values could not sensibly be obtained by assuming whole collections would be sold as on liquidation. It may be argued that in any case market values are an inappropriate way to value a countrys heritage. 10. Peacock (1995) gives the example of the Prado Museum in Madrid, where less than ten per cent of the collection is on display. 11. See Johnson and Thomas (1997) for examples. 12. Calculations based on English Tourist Board/British Tourist Authority data on museums. For U.S. data on new museums, see Blau (1995).

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13. Jackson (1988) has shown that private, non-prot history museums in the U.S. which are accredited by the American Association of Museums have operating costs which are 60 per cent higher than similar unaccredited institutions. 14. For a discussion of some of the questions raised in modelling the behaviour of non-prot rms in the performing arts see Throsby (1994). 15. Hewisons (1989) description of a heritage centre in Woomera, which is devoted to a collection of brightly painted rockets and bombs provides a graphic, if eccentric, illustration of this process. 16. For a fascinating study of major new museums, see Hudson (1987). 17. Museums are generally more concerned with universal access rather than target groups, but since museum attendance is correlated with education and income, it may, for example, be appropriate to target the development of acquired tastes on lower income and less educated groups. 18. As some of the distinctions between original and copy become blurred, distant consumption may not be second best.

References
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Johnson, P.S. and Thomas, R.B. (1995) The Economic Value of Museum Education: A Preliminary Review of the Issues, May 1995. A background paper prepared for the National Report on Museum Education Johnson, P.S. and Thomas, R.B. (1997) What Is a Museum? An Economic Perspective on the Professionals View. Proceedings, 4th Biennial Conference of the International Association for the Management of the Arts and Culture. San Francisco, July. Keynes, J.M. (1972) Essays in Biography. The Collected Writings of John Maynard Keynes, Vol. X. Macmillan for the Royal Economic Society, London. Museums Association (no date) Code of Conduct for Museum Professionals. London. Peacock, A. (1995) A Future for the Past: the Political Economy of Heritage. Proceedings of the British Academy 87: 189243. Pommerehne, W.W. and Feld, L.P. (1997) The Impact of Museum Purchase on the Auction Prices of Paintings. Journal of Cultural Economics 21: 249271. Steiner, F. (1997) Optimal Pricing of Museum Admission. Journal of Cultural Economics 21: 307333. Throsby, D. (1994) The Production and Consumption of the Arts: a View of Cultural Economics. Journal of Economic Literature XXXII: 129.