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Measuring technical efficiency and marginal costs in the performing arts: the case of the municipal theatres of Warsaw

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Abstract

The aim of this paper is to bring new contributions to the analysis of efficiency and productivity in the performing arts. Firstly, we consider how the behaviour of a performing arts company can be analysed using multi-output production technology, given that these companies offer different products in terms of quantity and quality. Secondly, and to the best of our knowledge for the first time in the literature, we propose a procedure to measure the marginal costs associated with the production of performing arts firms. Moreover, this procedure can be applied to any other cultural sector successfully. To achieve our goals, we estimate a stochastic input distance function for a panel data set of 19 public municipal theatres in Warsaw over the period 2000–2012. Additionally, we calculate the technical efficiency indices for these theatres and characterize some determinants of their efficiency, paying special attention to the effect of public grants. Our findings suggest that, at the sample mean, these municipal theatres in Warsaw could have used 7% less inputs to achieve the same level of outputs. At the same time, the presence of public grants improves efficiency and, so, contributes to extending innovation and diversity. The marginal cost of a new performance is around 7149 PLN, and introducing a new title costs up to 3.33 times more than one which stages one title already established in the repertoire. And, as already highlighted in other researches, we also confirm the presence of the cost disease and the positive effect of public subsidies on efficiency and quality in the performing arts.

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Notes

  1. In the case of performing arts firms totally market oriented, efficiency will be imposed through the control of the market.

  2. In this sense, but using a different methodology, Bertelli et al. (2013) have concluded that a well-managed public institution attracts more public grants.

  3. They estimate a fixed effects model using panel data.

  4. Lange et al. (1985) and Lange and Luksetich (1993) found economies of scale in the case of small orchestras while large orchestras benefited from economies of scope. Gray (1997) also observed economies of scale in the case of small performing arts companies. The presence of economies of scale was confirmed in Taalas (1997) and Fazioli and Filippini (1997) who also revealed economies of scope.

  5. Although we have focused on the performing arts, the analysis of efficiency and productivity analysis has reached other fields of cultural economics.

  6. The DEA technique is more frequent in other fields of cultural economics such as museums (Mairesse and Van den Eeckaut 2002; Del Barrio et al. 2009; Del Barrio and Herrero 2014), libraries (De Witte and Geys 2011; Guccio et al. 2018), cultural heritage (Guccio et al. 2014a) or archives (Guccio et al. 2014b).

  7. Bishop and Brand (2003) inaugurated this approach measuring the efficiency of English museums through a Cobb–Douglas production function.

  8. A DEA procedure does not impose a specific functional form but, at the same time, it does not allow us to distinguish between inefficiency and random shocks within the error term.

  9. It is noticeable that all of these studies focus on technical efficiency. Taalas (1997), using a generalized cost function, and Fernandez-Blanco and Rodríguez-Álvarez (2018) estimate an input distance function, incorporating a measurement of allocative inefficiency for cultural economics.

  10. The Polish theatre season lasts 12 months (from September to August) with 9–10 months of staging.

  11. This percentage ranges from 80 to only 30% in the case of entertainment theatres.

  12. It is also noticeable that, during the financial crisis, local politicians reduced public subsidies to municipal theatres in Warsaw. Between 2010 and 2012, their budget suffered an almost 25% cut in absolute terms, although their weight in terms of the municipality’s cultural expenditures grew from 16 to 22% in this period. This situation adds more interest to our analysis of the efficiency of these theatres.

  13. Without loss of generality, we initially assume that the theatre produces only one output.

  14. In 2013, the number of municipal theatres declined, because two of them were merged into one organization.

  15. From the manager’s point of view, it is more interesting to know the marginal cost of a new performance or a new production rather than the marginal cost of a new theatregoer which, except in the case of congestion, will be close to zero.

  16. As Werck and Heyndels (2007, p. 27) have pointed out, “quality is a multidimensional concept” and it has been considered in some different subjective or objective ways, such as reviews or word of mouth (Urrutiaguer 2002; Grisolia and Willis 2011) or expenses relating to different elements of a performance (Zieba 2009, 2011; O’Hagan and Zieba 2010). In this paper we focus upon novelty and innovation as quality indicators.

  17. We have not distinguished between temporary and permanent personnel or different professional categories. In a previous estimation, we tested the inclusion of these variables separately, but it did not prove statistically significant and did nothing to improve our results.

  18. Werck and Heyndels (2007) have pointed out how different variables controlled by the managers affect demand in the case of Flemish theatres.

  19. We include this variable to avoid considering as inefficiency something that is really innovation, assuming that a new production implies more resources.

  20. Although the input distance function estimated indicates that audience success implies more resources, they are managed more efficiently (that is to say, companies are closer to its potential frontier).

  21. This means 1865.89€ or 2457.37$, using the rate of exchange corresponding to the median year of our sample.

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Acknowledgements

The authors acknowledge financial support from the Project ECO2017-86402-C2-1-R (Ministry of Economy and Competitiveness, Spain) and the Project PRELUDIUM 2014/15/N/HS4/01441 (National Science Center, Poland).

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Authors and Affiliations

  1. Department of Economics, University of Oviedo, Oviedo, Spain

    Víctor Fernández-Blanco & Ana Rodríguez-Álvarez

  2. Department of Economics, University of Warsaw, Warsaw, Poland

    Aleksandra Wiśniewska

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  1. Víctor Fernández-Blanco
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  2. Ana Rodríguez-Álvarez
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  3. Aleksandra Wiśniewska
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Correspondence to Ana Rodríguez-Álvarez.

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Fernández-Blanco, V., Rodríguez-Álvarez, A. & Wiśniewska, A. Measuring technical efficiency and marginal costs in the performing arts: the case of the municipal theatres of Warsaw. J Cult Econ 43, 97–119 (2019). https://doi.org/10.1007/s10824-018-9330-8

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