Arts and culture are part of the broad subset of economic activities that are afforded special treatment – usually within the ambit of a government ministry – by some claim to special circumstances or importance. Defence, transport infrastructure, sports and education are other examples. What these sectors have in common is the claim that they produce public goods, or experience substantial market failure, justifying public support.
In this view, the problem with the arts and cultural economy is on the supply side. If left to the market, too few resources will be devoted to arts and cultural production. Hence government support is necessary to arrive at a socially optimal level of arts and cultural production.
But a different way of understanding the problems in the economics of arts and culture is from the perspective of the consumer (not the producer). Here the problem is simply that choice is hard because quality is uncertain. Markets can fail when producers lack the incentives to produce enough exciting new work, but markets can also fail because consumers don’t know how to choose over the set of new things, and find it easier to choose nothing. That is, they stay away.
By definition, art produces something novel and unique. This is something that economists call an experience good. You only know what you think of it after you’ve consumed it. This means that demand and purchase occurs before you know whether you will like something. Markets fail here because they don’t carry enough information.
Market-making in these industries invariably involves creating mechanisms to deal with the quality uncertainty problem. Often the economic success of a sub-sector depends upon the extent to which it can solve this problem.
There are several such mechanisms. One is a minimum quality standard, of the sort imposed through industrial regulations, licenses or certifications. These are used extensively in restaurant and tourism to signal minimum cleanliness, safety or service. Another is the use of a brand, which functions as a reputational hostage. Publishing Imprints and Galleries use this mechanism. Another mechanism is social network markets, where the pooling of the choices of other consumers fill in the information gaps. Box office sales and consumer reviews are examples of such.
But another important mechanism is awards. Awards are characterised by disinterested expert assessment of quality. Indeed, industries with substantial quality uncertainty problems (e.g. wine, movies, architecture, advertising, science, complex engineering) also tend to have high profile, high prestige awards (e.g. the Academy Awards for film, the Emmy’s for television).
So awards matter. But how do they actually work? And do they work differently in different industries?
A new study by Erwin Dekker and Marielle De Jong, both cultural economists from Erasmus University in the Netherlands, has examined a long and deep new data set on book awards in three countries: the US, France and the Netherlands. Their new paper called What Do Book Awards Signal? alights on a surprising finding, namely that book awards don’t work the same way that, as a prime comparison, movie awards work.AAP Image/Daniel Munoz
The basic difference is that with movie awards there is a relatively strong correlation between the assessments of different award juries (say Cannes, Sundance and the Oscars), and between these awards and popular consumer perceptions of quality, as measured with audience ratings. Relatively strong here means on the order of 50% correlation, which still leaves a lot of room for disagreement.
But with books, the overlap between different expert assessments of quality, i.e. consensus of expert opinion, is much lower: Dekker and De Jong find that it is 10% in the US, 7% in the Netherlands and just 3% in France.
So it seems that award winning books do not represent expert consensus about quality. So what are book awards doing? Dekker and De Jong suggest, following the work of Lucien Karpik, that book awards are signalling not a shared consensus on quality, but a judgement of distinctiveness.
Indeed, such awards work to precisely signal that a particular award winning book will not correspond to a common opinion assessment of quality.
An award winning book carries the signal that the reader will be consuming more than just a good book, but something more precious in a social context, namely a book of distinction, a quality that then carries over to the reader.
Why do book awards work this way? One reason is that books require more investment (i.e. time) than do movies. A second reason is that many more people need to agree that a movie is good through the production process in order for it to be made at all, so higher expert consensus is more likely.
Suppose now you’re a public benefactor of the arts and culture, or specifically that you were Mitch Fifield, Australia’s Arts Minister. One thing you can do is direct subsidy. That’s the producer-side market failure model. But while that makes the recipients happy, it doesn’t actually solve the quality uncertainty problem. The risk with that strategy is that all you’ll do is make some producers happy and leave the consumers of arts and culture no better off at all.
To solve that problem, consider setting up an award. Or rather, another new type of award. Can there be too many awards? Probably. But we are nowhere near that margin yet, and certainly not with high distinctiveness arts such as books, theatre, and dance. And the fun thing is you even get the legacy effect when you name the award after yourself.
Authors: Jason Potts, Professor of Economics, RMIT University