How the recession impacted the museums?

Betty Joyce Nash of Richmond Fed has a nice write-up on the topic.

Museums are like public goods. Hence pricing them is a tricky business:

Art museums provide valuable services. Museums not only enhance a community, they also protect and restore inherited artifacts, interpret and accumulate current creative work, and pass treasures forward to future generations. In short, they take care of the culture. But it’s a challenge to quantify or charge for this value in a way that pays the bills. Art museums rely on gifts and contributions as well as earned income, endowment income, and some government funding. Most museums struggle to fund daily operations as they make the tough trade-offs required to pursue missions.

Art museums don’t respond in the usual way to the forces of supply and demand that underpin markets for most commercial goods. Though the market for buying and selling art functions just fine, museums aren’t in the business of selling art for profit: They show and preserve the art and educate the public, a money-losing proposition almost by definition. As such, the services provided by museums are often considered public goods that may not adequately be produced by the for-profit sector. For most museums, then, viability means some combination of private contributions and public funds. This is why most museums are private nonprofits, about 71 percent; most of the rest are publicly owned and managed by various levels of government, according to an Institute for Museum and Library Services (IMLS) survey of more than 1,000 institutions in 2008. Only 0.2 percent of museums in the United States are for-profits.

Art museums are mostly funded from sources:

Art museum funding breaks down this way, on average: 13.1 percent comes from government, 23.3 percent from private sources, 46.1 percent from earned income, and 17.5 percent from investments, according to an IMLS survey based on fiscal 2006 data, the latest available. Museums are also subsidized indirectly through forgone taxes on property and income, estate tax deductions for charitable contributions, and nontaxation of endowment  income. Federal insurance guarantees also protect accredited museums against catastrophic damage when art is loaned.

The 2009  recession has been unkind:

The recession crimped art museums’ income, according to the latest AAMD survey. In 2009, 23 percent of respondents
reported increases in overall revenue relative to the previous year, up from 15 percent in 2008. That compares to 58 percent in 2006 and 55 percent in 2007. Less than one-fifth of respondents, 16 percent, reported increases in corporate support in 2009, with three-fifths reporting declines, the same as in 2008. (Business activity peaked in December 2007, the official start of the recession.)

Endowment income fell during the recession after rising in 2005 and 2006. By 2008, only 8 percent of respondents reported increases in endowment income; in 2009, 79 percent of museum respondents said endowment income fell. Earned income also has fallen.

Read the whole thing. Nice insight on economics of museums.

It also alerts one to a vast literature on the topic. For instance, one could see this book by Martin Feldstein et al and this paper by Bruno S. Frey and Stephan Meier. The paper by Frey et al has more literature. Superb stuff.

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