nep-cul New Economics Papers
on Cultural Economics
Issue of 2009‒03‒14
three papers chosen by
Roberto Zanola
University of the Piemonte Orientale

  1. Research and Development in Culture: A Case for Cross Subsidies in the Arts By Christian Jaramillo
  2. Buying Beuaty: On Prices and Returns in the Art Market By Renneboog, L.D.R.; Spaenjers, C.
  3. The Influence of Culture on Economic Outcomes: An Exploration of Islamic Finance as a New Transmission Channel By Laurent Gheeraert

  1. By: Christian Jaramillo
    Abstract: Several types of arguments advocate state involvement in the promotion of culture. Many of them imply some sort of subsidy, usually to non-for-profit firms; none favors taxing cultural events. The tax literature, on the other side, discusses excise taxation on culture only as a way to redistribute income. However, to the extent that culture is a public good, taxing it is undesirable. Why are then excise taxes on public events extant in many countries? This paper argues that the development of profitable artists is analogous to R&D in the industrial organization literature, and that the excise taxation of public cultural events may be part of an efficient policy to fund it. Using a Stackelberg game to model the investment to develop an artist, I find that the optimal tax is a multiple of the expected surplus created by the artist that cannot be appropriated by the investor who funds her, and that progressivity plays a limited role at most.
    Date: 2009–02–11
  2. By: Renneboog, L.D.R.; Spaenjers, C. (Tilburg University, Center for Economic Research)
    Abstract: This paper investigates the evolution of prices and returns in the art market since the middle of the previous century. We first compile a comprehensive list of more than 10,000 artists and then build a dataset that contains information on more than 1.1 million auction sales of paintings, prints, and works on paper. We perform an extensive hedonic regression analysis that includes unique price-determining variables capturing amongst others: the artist’s reputation, the strength of the attribution to an artist, and the subject matter of the work. Based on the resulting price index, we conclude that art has appreciated in value by a moderate 4.03% per year, in real USD terms, between 1951 and 2007. During the art market boom period 2002-2007, prices augmented by 11.60% annually, which explains the increased attention to ‘art as an investment’. Furthermore, our results show that, over the last quarter of a century, prices of oil paintings and of post-war art have risen faster than the overall market. In contrast to earlier studies, we find evidence of a positive masterpiece effect: high-quality art makes a better investment. Our results are robust to alternative model specifications, and do not seem influenced by sample selection or survivorship biases. When comparing the long-term returns on art to those on financial assets, we find that art has underperformed stocks but outperformed bonds. However, between 1982 and 2007, bonds yielded higher average returns (at a lower risk) than art. Buyers of art should thus expect to reap non-pecuniary benefits rather than high financial returns, especially because the modest art returns are further diminished by substantial transaction costs.
    Keywords: Art investments; Art market; Art returns; Auction prices; Hedonic regressions; Longterm stock returns; Long-term bond returns; Masterpiece effect
    JEL: G1 Z11
    Date: 2009
  3. By: Laurent Gheeraert (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
    Abstract: Islamic finance is one of the most prominent phenomena over the last decade in the banking industry in the Middle-East and South-East Asia. It has recently spread in non-Muslim countries, such as the UK or the US. Globally, assets on the books of Shariah-compliant commercial banks have exceeded 350 Billion USD in 2005 and grown by an average of 29% annually from 2000. In spite of the substantial size and growth of this segment, the role of Islamic banking in the economy is still heavily debated and very few empirical work is available. This paper studies the impact of Islamic banking on financial sector development. It circumvents the lack of data through a newly-constructed and comprehensive database, “IFIRST”, covering Islamic commercial banks worldwide over the period 2000-2005. This database is, to our knowledge, unique in the industry. After controlling for standard determinants and potential endogeneity, using religion as an instrument, we find strong and significant empirical evidence of a positive role of Islamic banking on countries’ financial sector development, as measured by private credit over GDP.
    Keywords: culture, religion, Islamic Finance, financial sector development, growth.
    Date: 2008–03

This nep-cul issue is ©2009 by Roberto Zanola. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.