Valuing small to medium arts venues

Civic benefits

For the purposes of this study, a civic benefit is a contribution made by having art spaces in Sydney that would otherwise have to be provided (presumably by the state) if the same community-wide standard of living were to be enjoyed. In other words, it typically represents a cost avoided by government.

Two instances of civic benefit are identified. Expenditure associated with art spaces in Sydney is estimated to generate in the order of 1,508 jobs, 1,098 of which are full-time. Wages of $62.52 million are directly returned to households, with an equivalent welfare cost avoided by government.

The estimate of taxes generated by art space attendees’ expenditure is $2.48 million. Taxation receipts may not be directly proportional to the relevant investment of each tier of government. Nevertheless, it is unlikely that the industry receives an equivalent quantum of re-investment from government; it could be argued that direct tax returns from art spaces are used to finance other policy and social investments, such as hospitals and schools.

Civic benefits acknowledged but not quantified by this study include the significant levels of volunteering that occur within art spaces and galleries in Sydney, as well as the costs potentially avoided by our civil systems of health, criminal and social justice. This is recommended as a direction for future research.

Individual benefits

Consumers engaging with art spaces through the purchase of a good or service are assumed to derive some benefit. A rational economic framework assumes that decision-makers are acting to maximise utility in and do not intentionally make decisions that reduce utility. Therefore, for each act of participation or consumption, there is a gross benefit (consumer surplus) attached.

Gross benefit is at least equal to consumer’s expenditure. The revealed preference framework can be applied to identify the minimum benefits associated with expenditure. In this case, the $111.92 million households spend on tickets, food and beverages, and other purchases.

Determining the benefits to individuals associated with their engagement involves adding their revealed preferences to the contingent value of their of art spaces consumption. It is found that consumers recognise a well-being surplus of $45.17 million that was directly attributable to having art spaces in Sydney in 2016.

Use value

Transactions occurring in markets are argued to be a social good because the exchange will only occur when both buyer and seller perceive value in the deal. For the vendor, this means making a profit; known as producers’ surplus. Producers’ surplus is estimated in the Commercial Benefits section of this report.

Consumer’s surplus is the value above what they pay for a good or service, and assumes that welfare of both parties is improved. Markets for goods and services that do not meet this twin threshold do not occur naturally.

Consumer surplus is an important benefit in calculating the net costs or benefits of an activity, for it allows us to arrive at a use value of a product or service. The use value is the sum of the purchase price and consumer surplus.

Our surveys of gallery and art space attendees reveal that value for attending art spaces and related goods and services consumed in Sydney in 2016 was $111.92 million; therefore users perceive at least this much value in the activity.

Survey respondents were then asked if they would hypothetically be willing to pay (WTP) an additional amount for those benefits not quantified in their purchase, and the value this contribution might be worth over 12 months. WTP is thus a quantification of individual’s satisfaction with their consumption, in this case of art spaces.

There is evidence to suggest some respondents to the art spaces telephone survey misrepresented their WTP. Of the 532 telephone survey respondents, 6 reported a WTP greater than 10 per cent of their annual income. Without controlling for misrepresented preferences, analysis will therefore overestimate the true WTP for consumers of art spaces.

To control for attempts to influence analysis, WTP was capped at 10 per cent of an individual’s reported annual income. WTP should not be confused with an individual’s capacity to pay (as it is a measure of gross satisfaction), capping allowed for WTP to vary while lowering the influence of misrepresented preferences. WTP was capped for 6 responses, or 1.12% per cent of the sample.

Average user WTP is conservatively estimated to be $1089.4, or approximately $21 per week, with a standard error of $182.09. There is a 95 per cent probability that the true mean WTP lies in the interval $907.31 and $1271.49.

As 26 per cent of the population aged 18 years and over are assumed to attended a gallery in 2016 (ABS, 2010a), this reveals a gross consumer surplus of $45.17 million, or 40% of their actual expenditure (not including shadow costs).

The gross value-in-use of art spaces in Sydney, being the sum of market price and consumer surplus, is therefore estimated to be $157.08 million.

Non-use value

To this point, the methods described have exclusively considered the use value for consumers of art spaces. It is recognised, that residents might value the presence of art spaces, even if they do not purchase or otherwise engage with them. This other 74 percentage of Sydney residents are distinguished here as non-users.

The concept of non-use value is commonly used in economics to estimate the benefits of environmental resources, which are difficult to value through markets (Hanemann, 1993).

In this report, non-use value is derived from individuals who do not engage with art spaces, but recognise its benefits to the whole community. Our telephone survey respondents who reported not attending art spaces had an average willingness to pay of $435.84, approximately $8 per week. Across the 18 and above population of Sydney who do not attend art spaces this equates to a non-use value of $51.43 million.

A cautionary note

Expressions of willingness to pay essentially measure satisfaction, and should not be confused with a desire on the part of consumers to pay more. In terms of value, increasing prices would result in a zero sum for current art spaces patrons, as the consumers’ surplus would be converted into producers’ surplus for no net gain.

Even though it is also known that ticket prices of live events are relatively inelastic; anecdotally, at least, non- consumers are highly price sensitive. Therefore, non-users would be alienated by price rises that were not linked to new value, and this would reflect in their adjusted WTP. As it is assumed that the greatest community benefit can be realised by converting non-consumers of art spaces into patrons, deliberating exploiting the presently high levels of the community’s WTP—by either increasing prices or withdrawing subsidies—is likely to be counter-productive.

The Value of Art spaces in the City of Sydney, 2016

Costs
Direct		$111.92
Opportunity		$1.37	$113.28
Benefits
Commercial
Producers' surplus	$50.33
Productivity	$8.76	$59.09
Civic
Employment	$62.52
Taxation revenue	$2.48	$64.99
Individual
Patrons	$157.08
Non-users	$51.43	$208.51	$332.60
Net benefit			$219.32
Benefit : cost ratio	2.94	: 1

The community-wide value of small-to-medium art spaces in the City of Sydney is the sum of the benefits enabled. This study estimates these to be worth $332.60 million in 2016. This figure is significantly greater than previous estimates based on price or economic impact; however, it is likely to be an underestimation given the limitations of the available data and forensic techniques.

On its own, $332.60 million is a fairly meaningless sum. The power of numbers lies in their ability to provide a standardised basis for comparison, and—short of performing the same exercise for every other human activity—a top-line valuation of every human endeavour is impractical, if not impossible.

For that reason this study contrasts the net value of art spaces in Sydney with the cost of inputs. It can be seen that for every dollar invested by the community, just under three dollars are returned.

It is beyond the brief of this project to make recommendations as to how government investment in art spaces in Sydney can be made more efficient. That would require the application of the model to specific programs and policy contingencies. The results reported nevertheless reveal a number of outcomes that should be of particular interest to the community.

This analysis has shown that, because the external benefits of art spaces in Sydney exceed the social costs, the outcome is in fact efficient. We conclude that those who invest their time and money in enabling art spaces in Sydney are supporting the common good. Hopefully this report can educate readers to the economically real and significant value of art spaces in Sydney.

Although there are a number of limitations to the findings that would benefit from future research, the opportunity now exists for decision makers in both industry and government to leverage this framework for continual improvement in the marketing and delivery of their services.

References

ABS (2001). Small Businesses in Australia, 2001. Retrieved from http://www.abs.gov.au/ausstats/abs@.nsf/mf/1321.0

ABS. (2010b). Australian National Accounts: Input-Output Tables - Electronic Publication, Final release 2006-07 tables 5209.0.55.001. Canberra: Australian Bureau of Statistics.

ABS. (2012). Australian National Accounts: Input-Output Tables, 2008-09 (Vol. 5209.0.55.001). Canberra: Australian Bureau of Statistics.

ABS. (2014a). Australian National Accounts: National Income, Expenditure and Product, Jun 2014 5206.0. Canberra: Australian Bureau of Statistics.

ABS. (2015a). Attendance at Selected Cultural Venues and Events, Australia, 2013-14 4114.0. Canberra: Australian Bureau of Statistics.

ABS. (2016). 3101.0 Australian Demographic Statistics: TABLE 51. Estimated Resident Population By Single Year Of Age, New South Wales.

ABS. (2016b). Consumer Price Index, Australia 6401.0. Canberra: Australian Bureau of Statistics.

Australia Council. (2010). Artistic Vibrancy. Retrieved from http://www.australiacouncil.gov.au/strategies-and-frameworks/artistic-vibrancy/

Americans for the Arts. (2007). Arts & Economic Prosperity III: The Economic Impact of Nonprofit Arts and Culture Organizations and Their Audiences. Available online.

Bailey, J., & Richardson, L. (2010). Meaningful measurement: a literature review and Australian and British case studies of arts organizations conducting “artistic self-assessment”. Cultural Trends, 19(4), 291-306.

Bakhshi, H., Freeman, A., & Higgs, P. L. (2013). A dynamic mapping of the UK's creative industries. Retreived from http://eprints.qut.edu.au/57251/1/57251.pdf

Belfiore, E. (2002). Art as a means of alleviating social exclusion: Does it really work? A critique of instrumental cultural policies and social impact studies in the UK. International journal of cultural policy, 8(1), 91-106.

Carnwath, J. D., & Brown, A. S. (2014). Understanding the value and impacts of cultural experiences. Manchester, United Kingdom: Arts Council England.

Department of Culture, Media and Sport. (2016). Creative industries economic estimates, January 2016. Retreived from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/523024/Creative_Industries_Economic_Estimates_January_2016_Updated_201605.pdf.

Duxbury, N., & Campbell, H. (2011). Developing and revitalizing rural communities through Arts and Culture. Small Cities Imprint, 3(1).

DiNoto, M.J. and Merk, L.H., 1993. Small economy estimates of the impact of the arts. Journal of Cultural Economics, 17(2), pp.41-53.

Hanemann, W. M. (1993). Three approaches to defining" existence" or" non-use" value under certainty.

Johnson, B. K., Mondello, M. J., & Whitehead, J. C. (2007). The Value of Public Goods Generated by a National Football League Team. Journal of Sport Management, 21(1), 123-136.

Klamer, A. (2004). ‘Social, cultural and economic values of cultural goods’. In Cultural and Public Action, edited by Vijayendra Rao and Michael Walton. Stanford University Press.

Lehman, K. F. (2013). The tricky notion of'value'in the arts. Retrieved from https://theconversation.com/the-tricky-notion-of-value-in-the-arts-20408

Live Music Office. (2015). The Economic & Cultural Value Of Live Music In Australia 2014. Avaliable online.

Marwick, K. P. (1994). The arts: A competitive advantage for California. ERIC Clearinghouse.

McKean, R. N. (1968). The use of shadow prices.

Mikić, H. (2012). Measuring the Economic Contribution of Cultural Industries: A Review and Assessment of Current Methodological Approaches. UNESCO.

Muller, P., Cameron, N., Jameson, L., Robertson, K., & Grafton, R. (2013). The Economic, Social and Cutlural Value of the Salamance Arts Centre 2011-2012: Salamanca Arts Centre.

Mulligan, M., & Smith, P. (2010). Art, governance and the turn to community. Melbourne: Globalism Research Centre, RMIT University.

Office of Best Practice Regulation. (2005). Decision rules in regulatory cost-benefit analysis Best Practice Regulation Canberra: Department of Finance and Deregulation

Ollman, B. (1976). Alienation: Marx's conception of man in a capitalist society: Cambridge University Press.

Radbourne, J., Glow, H., & Johanson, K. (2010). Measuring the intrinsic benefits of arts attendance. Cultural trends, 19(4), 307-324.
Reeves, M. (2002). Measuring the social and economic impact of the arts: a review. Arts council of England.

Snowball, J.D. and Antrobus, G.G., 2002. Valuing The Arts. South African Journal of Economics, 70(8), pp.1297-1319.

Throsby, D. (2001). Economics and culture. Cambridge university press.

Wodsak, A., Suczynski, K., & Chapple, K. (2008). Building Arts, Building Community. Informal Arts Districts and Neighbourhood Change in Oakland, California.