The economic theory of museums is a field of cultural economics that focuses on the economic functioning of museums.
More specifically, the economic theory of museums mainly analyzes museum activity within two frameworks. Firstly, a museum can be considered as an economic unit (like a business), viewed from the angle of the relationship between its inputs (collections, budget, employees) and its output (sales, exhibitions, media presence, scientific publications). Within this framework, the effect of museums on other sectors can also be studied in terms of employment or sales generated. Secondly, it can be studied as a neoclassical economic[nb 1] agent maximizing an objective under a constraint of allocation of scarce resources.
The economic analysis of museums highlights the fundamental impact of financing methods (subsidies, own resources, donations) on museum policy in terms of collection management, artistic orientation (towards the general public or connoisseurs) and the implementation of activities designed to increase resources.
Since the 1980s the number of museums has risen sharply, and a star system has emerged for museums located in touristic destinations, housed in spectacular buildings and boasting world-famous works in their collections. These museums are attracting a growing share of visitors, while other museums, though increasingly numerous, are seeing their attendance decline.
Like the rest of cultural economics, the economic theory of museums is a relatively recent branch of economics. In fact, economic analysis only began to be applied to museums in the 1980s, as the number of museums multiplied and trade-offs were made necessary by the climate of budgetary austerity that called into question public subsidies in all fields, and particularly in culture.
Overview
The economic study of museums emerged as a distinct field in the 1980s, a period marked by the rapid growth in the number of museums and increased financial pressures resulting from economic downturns. Prior to the early 19th century, museums were primarily accessible to apprentice artists who used these institutions to study and replicate established artworks. Although museums began to embrace educational roles around 1880, the process of opening their doors to the general public was gradual and often resisted by professionals who maintained an elitist view of the museum’s purpose.
Historically, museum funding was closely tied to their function of preserving artistic and cultural heritage. This focus remained largely unchallenged until public funding began to decline and operational costs increased, partly due to the Baumol effect—a phenomenon where costs rise even if productivity remains unchanged. These financial challenges led to renewed debates about the economic justification for maintaining museums and strategies for their long-term sustainability.
Museums today encompass a variety of types, including history museums, art museums, science and technology museums. Regardless of type, all museums face the ongoing challenge of balancing the preservation of their collections and educational missions with the professional ambitions of museum managers. In the 1990s, science and technology museums generally experienced fewer difficulties in securing funding and public support compared to art museums, resulting in a greater focus of academic research on the latter.
The economic analysis of museums addresses several key questions. It explores the underlying reasons for the existence of museums, the motivations for both establishing and visiting these institutions, and the factors influencing these decisions. Additionally, it examines the unique characteristics of the modern museum sector. This includes an analysis of the costs associated with running museums, focusing on the relationship between financial and human resources and the delivery of services such as conservation, documentation, and exhibitions. The analysis also considers the number and variety of museums in existence. Central to the discussion are issues related to collection management and pricing policies. Recent trends indicate a concentration of visitors and resources in a small number of prominent museums and exhibitions, highlighting shifts in public interest and funding within the sector.
Typology of demand in museums Art museums often originate from institutions or collections established in the early 20th century or before. The establishment of newer museums is usually motivated by scientific or regional development needs, not by economic factors alone. The analysis of demand for museum services assumes the presence of a museum. Demand for museum services arises from individuals interested in the collections and from those who benefit economically from the museum’s activities
Private demand
The largest component of private demand depends on the entrance ticket price, the opportunity cost of time spent visiting, and the price of alternative activities.
Ticket price Econometric studies, often conducted on a limited number of museums, indicate that the price elasticity of admissions (the drop in admissions generated by an increase in ticket price) is very low (between 0 and −0.5). This means that an increase in ticket price leads to a small decline in the number of visitors. This pattern is more evident in art museums, while science and history museums show greater sensitivity due to the presence of more competing activities nearby. As a result, some museums can generate significant revenue from admission fees without a large decrease in attendance. However, ticket sales account for only a small portion of total revenue, as seen in the 150 largest museums in the United States, where ticket sales make up about 5% of revenue.
Since these findings are based on price changes, evaluating the effects of moving from paid to free admission requires different methods, which are relevant to museum pricing policies.
Visitor opportunity cost and revenue sensitivity Income sensitivity of museum visits is a subject of public policy, as it helps determine if subsidies benefit higher-income groups more than lower-income groups. The relationship is ambiguous. Income is closely linked to education level, which influences visitation rates. Higher income also means a higher opportunity cost for time spent visiting. Individuals with higher incomes may be more likely to visit museums due to higher education, but less likely because the cost of their time is greater. Income elasticity is higher for museums that require more specialized knowledge, such as contemporary art museums, which suggests that income acts as a proxy for human capital. For people with similar education levels, income itself is not a primary factor in museum attendance.
Pricing of alternative or complementary activities For visitors who do not live near a museum, the decision to visit a specific museum depends on the comparison of all related costs, including transportation, lodging, and meals, with those of other activities. In Scotland, one study estimates that these additional costs account for over 80% of the total cost of a museum visit.
Social demand
The existence of a museum produces externalities for both those whose economic activity is not directly related to the museum and those whose activity is linked to it. Society benefits from improved knowledge of artistic or technical heritage. Museums also generate visitor flows that support local businesses and enhance the reputation of the location.
Social externalities Museums illustrate the multiple externalities of cultural goods. Non-visitors benefit from the option to visit in the future (option value), from the preservation of works for future generations (bequest value), from the existence of preserved objects (existence value), from the prestige associated with the museum, and from its role in education and cultural identity. These effects are difficult to measure, but studies using contingent valuation, changes in real estate prices near museums, or natural experiments suggest these values are significant.
Private externalities Private externalities refer to the direct economic effects of museums on the profits of businesses connected to them. These effects are often used to justify the existence of museums. However, the main function of a museum is to preserve collections and provide public access. Local economic stimulation can sometimes be achieved at a lower cost through other means than through museum institutions.
The offer: costs and organization
Cost structure
Museums have a cost structure that differs significantly from that of most companies in the service sector. Their large buildings, usually located in the heart of major conurbations, a large collection with little or no transferability, as well as insurance, security, and personnel costs, represent significant fixed costs. On the contrary, the marginal cost of an additional visitor is close to zero, except when there is crowding around certain artworks (such as the Mona Lisa at the Louvre) or during very popular temporary exhibitions. The results of an empirical study on the subject confirm the existence of economies of scale below the threshold of around 100,000 visitors per year, with the average cost only increasing above this number of annual visitors. However, too few studies on the subject are available to give any real general validity to these thresholds.
Moreover, like most players in the cultural sector, museums are subject to a form of Baumol effect. The cost of maintaining and preserving their heritage increases at the same rate as the wages paid to a qualified workforce. With the exception of the construction of new buildings, this problem seems to be offset in the case of museums by productivity gains linked to the reduction of low-skilled jobs (camera surveillance), the dissemination of images of collections online, the use of volunteers and the development of other related products based on the best-known exhibitions or works.
However, museum governance systems often separate investment decisions from those setting the operating budget. As a result, allocated budgets do not take into account the need to make provisions for major works or new buildings (the notion of accounting depreciation), and more often than not underestimate the cost of maintaining architecturally daring buildings, as well as the real cost of organizing temporary exhibitions (sometimes financed at the expense of core conservation and research activities).
Opportunity costs and collection management The most distinctive element of a museum's cost function is the potential value of its collection. A work of art in a museum's reserves represents a significant opportunity cost. It could be sold to finance the museum itself or to buy other works on the market. There is therefore a trade-off between the desire to sell works to fill gaps in a museum's collection and the museum's role in preserving its heritage. To avoid placing the burden of this trade-off solely on the museum's management, most museums do not include the market value of their collections in their balance sheets, and sales of works are governed by highly restrictive statutes.
The proliferation of museums
Two instruments are most often used to assess the success of museums: the total number of visitors and the ratio between the number of visits and the total population. According to these tools, museum attendance has increased considerably since the 1970s in developed countries. French national museums welcomed 14 million visitors (including 10 million paying visitors) in 2000, while in the United States, the ratio of visits and population rose from 22.1% in 1979 to 87.3% in 1993.