Government funding of the arts has received considerable attention in the United States in recent years. Efforts to cut funding to the National Endowment for the Arts and declining budgets for state arts agencies have raised questions about how much individuals value the arts. This paper applies the contingent valuation method to assess this value, using surveys of random households and of arts patrons. Our analysis estimated a mean willingness to pay (WTP) among all Kentucky households from $6 to $27, depending on the estimation technique used and on whether the scenario discussed is to increase arts performances by 25 percent%, or to avoid a 25% percent or 50 percent% decrease in the number of performances. Among arts patron households, the mean WTP ranges from $61 to $132. Consumer demand for arts performances in large part follows a predictable pattern. The likelihood of respondents agreeing to make the donation that is requested rises as the size of the donation decreases. The likelihood is higher to avoid a 50 percent% decline in performances than to avoid a 25 percent% decline in performances. The mean WTP rises with income, and arts patron households have a much higher WTP than all households. WTP rises with on-site use factors such as frequency of attendance. The WTP also rises for arts patrons households with off-site use such as watching arts events on television or reading about the arts in newspapers and magazines. We find that mean willingness-to-pay (WTP) ranged from $6 to $8 per household among all Kentucky households to support a 25% increase in arts performances. Mean WTP ranged from $11 to $13 annually to avoid a 25% decrease in performances and from $25 to $27 to avoid a 50% decrease. Mean WTP in these scenarios was 4 to 12 times higher for arts patrons households than for the all Kentucky households.

Keywords: Funding for the arts, contingent valuation, willingness-to-pay

Through their ticket purchases, and time and monetary donations, residents of the United States demonstrate the value they place on cultural activities. The valuation is evident in the support received by major cultural institutions such as theatres, philharmonics, and museums in urban areas as well as smaller, voluntary organizations located in communities of all sizes. Support from individuals is often augmented by support from governments at the federal, state, and local levels. The net result is that scores of professional orchestras, theatres, and other artistic groups are scattered throughout the United States, along with thousands of voluntary performing organizations.

The value that individuals place on the arts has received increased attention in the past few years. Federal funding of the arts has received much scrutiny from lawmakers and citizens, and state funding for the arts has also decreased over time. Increasingly, local and regional organizations and governments are being asked to provide a greater share of funding to help support arts organizations. Indeed, an analysis of the members of the U.S. Urban Arts Association, which includes local arts agencies in the 50 largest U.S. cities, found that state appropriations to these organization had decreased by 9.1 percent% from 1990 to 1995 while National Endowment for the Arts appropriations to these members had decreased by 5.2 percent%. On the other hand, local public funding of arts agencies in these communities increased by 182 percent% over the same period. Moreover, there is some evidence that donations to arts organizations from individuals may be declining. A 1994 report entitled Giving and Volunteering indicated that the average household donating to the arts gave 47 percent% less in 1993 than in 1987, from $260 to $139 per year.

To assess the value that the residents of a state place on arts performances and exhibits, this paper uses the contingent valuation method, which uses survey questionnaires to ask households to reveal the value they place on public goods. This valuation, and the related willingness to make donations to arts organizations directly or through their government, can arise because the public perceives a use value, option value, and/or existence value from the arts (Throsby and Withers, 1979; Clark and Kahn, 1988). Individuals may value the existence of arts events because they attend the events, they wish to maintain the option to attend events, or they simply perceive cultural or other benefits from the existence of the arts, even if they do not attend.

Contingent valuation has been used extensively to estimate the value of public goods, particularly environmental and health goods (e.g., Mitchell and Carson, 1989; Kenkel, Berger, and Blomquist, 1994; O’Conor and Blomquist, 1997; Ready, Berger, and Blomquist, 1997; Blumenschein, Johannesson, Blomquist, Liljas, and O’Conor, 1998; Whitehead and Hoban, 1999; Cummings and Taylor, 1999; Ethier, Poe, Shulze, and Clark, 2000; Gregory, 2000; Carlson and Martinsson, 2001; Blumenschein, Johannesson, Yokoyama, and Freeman, 2001). This paper is one of the first efforts to uses the contingent valuation method to measure the value that individuals place on cultural amenities. In addition, this study is the first to examines the value that the public places on the composite arts good rather than particular arts institutions. Thus, this study is relevant for considering the value the public places on changes in across-the-board funding for arts agencies, rather than specific organizations. Previous contingent valuation studies of the arts have considered funding for specific institutions. Santagata and Signorello (2000) examined the value that residents of Naples, Italy placed on the city’s public cultural program to open for visitation a local network of churches, palaces, and a museum. This value was measured by public willingness-to-pay out-of-pocket to support the program. Bille Hansen (1997) examined the value that Danish households placed on the Royal Danish Theatre, also measured by public willingness-to-pay out-of-pocket to support the theatre. Martin (1994) examined the value that the public in Quebec placed on supporting museums in that province, as measured by public willingness to divert more tax dollars to museum subsidies and away from other purposes. Each study suggests that contingent valuation studies can be used to estimate willingness-to-pay to support cultural institutions.

This study also is the first toalso surveys both arts patron households and all households regarding their willingness-to-pay (WTP) to support an increase in the number of arts performances and exhibits or to avoid a decrease in the number of performances and exhibits. This study also uses both parametric and nonparametric techniques to evaluate the mean WTP of households to support arts performances.

The paper is organized as follows. The next section considers the motivations behind arts donations, discusses the contingent valuation method, and reviews two previous contingent valuation studies of cultural amenities. The third section discusses the design of the survey questionnaire and the response rate and profile of respondents. The fourth section contains a nonparametric and parametric analysis of survey results and discusses the impact of household characteristics on willingness-to-pay to support the arts. The fifth section concludes the paper.

The revenue of arts organizations often comes from a combination of commercial ticket sales, concessions, and advertising as well as corporate, individual, and government donations. While arts organizations can exist primarily on commercial sales, as in the case of many Broadway theatre productions, much revenue typically comes from donations. In fact, a recent survey of arts organizations in Kentucky found that corporate and individual donations and public support accounted for 40 percent of organization revenues (Thompson, Berger, and Allen, 1997). This revenue pattern indicates that consumer support for arts organizations frequently occurs through donations, in addition to ticket sales.

As with environmental amenities, individuals may be motivated to make donations to the arts due to use value, option values, and/or existence value. Use value is the value placed on the presence of arts activities by individuals who attend arts performances (on-site use) or enjoy them indirectly, perhaps by reading reviews of the performances or viewing broadcasts on television (off-site use). Most of these individuals naturally share some of the use value they derive from arts performances with arts organizations through ticket purchases. They may want to share even more of their use value with arts organizations through donations, however, which ensures access to the arts amenity they consume (Clark and Kahn, 1988). In particular, donations may be necessary to encourage local arts organizations to offer more high-quality performances or exhibits, or, in the case of smaller cities and communities, to help organizations to exist. The alternatives, after all, might be that these people attend fewer (or no) arts events or that they bear the costs of repeatedly traveling to other places to see a full season of theatre or ballet or to visit an art museum. In other words, these individuals may donate some of their consumer surplus at prevailing ticket prices in order to keep the remaining surplus or to avoid these travel costs^.

Individuals with no expectation of attending arts organization performances or exhibits either in the present or the future may still place an existence value on the existence of these organizations. These individuals may feel that arts organization activities build or perpetuate a national, state, or local cultural identity, or encourage creativity or aesthetic standards (Throsby and Withers, 1979; Bille Hansen, 1997). The alternatives, after all, might be that these people attend fewer (or no) arts events or that they bear the costs of repeatedly traveling to other places to see a full season of theatre or ballet or to visit an art museum. In other words, these individuals may donate some of their consumer surplus at prevailing ticket prices in order to keep the remaining surplus or to avoid these travel costs.

Use value (over and above ticket payments), option value, and existence value are all reasons why individuals may donate to support arts organization activities. It may be difficult to measure the total value that individuals place on arts activities, however. Individuals who attend arts events reveal some use value through ticket purchases, but they would not reveal the complete use value unless arts organizations could practice perfect price discrimination. Moreover, these individuals may also reveal some use (over and above ticket payments), option, and existence values through donations. Yet most people will not voluntarily donate their entire value, with the expectation that other people will donate as well.

Relative to indirect market methods for estimating the value of public goods (i.e., through hedonic housing or wage equations), one advantage of the contingent valuation method is that the researcher can vary the amount of change in the public good rather than working with whatever changes are observed in the data. In addition, the level of change in the composite good can be directly described with a contingent valuation approach but may be very difficult to measure in data collected at the state or city level. Finally, Mitchell and Carson (1989) and Blumenschein, Johannesson, Blomquist, Liljas, and O’Conor (1998) point out that the accuracy of contingent valuation estimates has been supported by some experiments comparing willingness-to-pay measured both with hypothetical contingent valuation surveys and with real payments, at least when respondents are very familiar with the goods involved, and respondents are highly certain about their responses.

Among previous contingent valuation studies of the arts, Bille Hansen (1997) found that the aggregate willingness-to-pay among Danish citizens to support the Royal Danish Theatre exceeded the public subsidy for the theatre. Bille Hansen also found positive willingness-to-pay among citizens who had never attended the theatre, suggesting that Danish citizens have an option and/or existence value for the Royal Danish Theatre. Martin (1994) found that the social value of the museum he studied in Quebec exceeded its public subsidy. Santagata and Signorello (2000) found that aggregate willingness-to-pay among residents of Naples, Italy to support a local public cultural network of churches, palaces, and a museum exceeded the public subsidy for the network. Clark and Kahn (1988) used a hedonic wage approach using individual data from 279 metropolitan areas to estimate willingness-to-pay for five cultural amenities: museums, zoos, symphonies, dance troupes, and theatres. Empirical estimates revealed a positive WTP to support an increase in the quality of these cultural institutions, or an increase in their quantity in any particular city. The average household’s WTP to support one additional museum, zoo, symphony, dance troupe, or theatre ranged from $1 for an additional theatre to $37 for an additional symphony and $68 for an additional zoo.

Data for this contingent valuation study come from two mail surveys. One survey was a random sample of all households in Kentucky and the other survey sampled households that were considered "arts patrons." The survey was sent to 600 randomly selected Kentucky households and 600 randomly selected arts patron households. Incorrect or undeliverable addresses accounted for 37 surveys in the all household sample and 7 surveys in the arts patron sample, leaving 563 potential survey recipients among the all household sample and 593 potential survey recipients among the arts patron sample. Each recipient received the survey a maximum of three times.A second copy of the survey was sent to nonrespondents to the first mailing and a third copy was sent to nonrespondents to the second mailing. Of the potential recipients, 168 were surveys were returned from the all household sample that had answered thewith completed contingent valuation questions, for a return rate of 29.8 percent%; 335 surveys were returned from the arts patron sample that had answered the contingent valuation questions, for a return rate of 56.45 percent%.

We first asked respondents about their "consumption" of arts events and arts activities. These included questions on attendance at arts performances or exhibits; monetary, time, or in-kind donations to arts organizations; production or performance in arts events; and reading or viewing of arts activities or performances in newspapers or on radio or television. These questions were designed to remind respondents about their "off-site" or "on-site" consumption of arts performances and exhibits and added context to the respondents’ valuation of the arts later in the survey. The questions also classified each respondent as a user or non-user of the arts, which is used in the analysis of the survey results below.

Each questionnaire also contained one of three contingent valuation scenarios, and each respondent was randomly assigned one of the three scenarios. All three scenarios explained that hundreds of arts performances occur throughout Kentucky each year and that these performances are funded in part by state and local government tax dollars and private donations. The three scenarios then diverged. The first scenario explained that a group was being formed to raise money from private donations to establish a fund to support arts organizations. The fund’s goal would be to raise the number of arts performances and exhibits by 25 percent% over current levels. The second scenario indicated that a cut in state and local government funding would reduce budgets for arts organizations so that a 25 percent% reduction in arts performances and exhibits would results. Respondents were asked to donate money in order to avoid this 25 percent% reduction. Similarly, a third scenario indicated that a cut in government spending would lead to a 50 percent% reduction, and respondents were invited to donate money to avoid this 50 percent% reduction. With these alternative scenarios, we could examine the value that respondents placed on maintaining existing performances and exhibits in contrast to funding new or additional performances and exhibits. (See Appendix 1 for the text of each scenario. A copy of the complete survey instrument is available upon request).complete text of each scenario).

For each scenario, respondents were asked whether they would be willing to pay $10, $25, $50, $75, $150, $500, or $2,000 each year to fund the given scenario. Each respondent was randomly assigned only one amount. Thus, the donation amount served as the price of the scenario, and respondents were asked whether or not they would be willing to pay the stated amount for the given scenario. The respondents were also asked to indicate the certainty of their donation, on a scale of 1 to 10, with 10 being certain. This information made it possible to distinguish between respondents who would probably pay from those who would definitely pay.

Respondents who indicated a certainty of 9 or 10 were considered to be willing to pay the given amount, but respondents who indicated a certainly of less than 9 were not considered "willing to pay," even if they responded that they would pay the specified amount. Such a high level of certainty was required due to the hypothetical nature of the willingness-to-pay question. Some have argued that contingent valuation respondents are too willing to agree to hypothetical payments since they are not required to make actual payments, leading to an upward bias in willingness-to-pay estimates (Mitchell and Carson, 1989). Requiring a high level of certainty helps to address this concern by permitting affirmative responses only for those who are most certain in their responses. For example, Blumenschein, Johanneson, Blomquist, Liljas, and O’Conor (1998), Johannesson, Blomquist, Blumenschein, Johansson, Liljas, and O’Conor (1999), and Blumenschein, Johannesson, Yokyama, and Freeman (2001) founind that respondents who were "definitely sure" of their affirmative response were equally likely to agree to make a payment as respondents faced with a real purchase decision. Allowing fewer affirmative responses also would lead to a lower total willingness-to-pay.

This "take-it or leave-it" bidding approach has severaltwo advantages. First, it is similar to the type of buying decisions consumers make everyday — an item is available at a given price and consumers decide whether or not to purchase it. Second, it creates a demand curve for the arts amenity (whether the amenity is a 25 percent% increase in performances, or avoiding a 25 percent% or 50% percent decrease). The percentage of affirmative responses can be calculated at each price level to generate a survivor curve (see Figure 1). The area under this survivor curve is what the mean voter would be willing to pay for the amenity. Third, this approach is superior to the alternative approach of asking respondents only open-ended questions about their willingness-to-pay since some respondents could give extreme responses. The price alternatives used here were developed from an open-ended willingness-to-pay question given to a pre-test group. For a full discussion of alternative contingent valuation bidding procedures, see Mitchell and Carson (1989).

Table 1 contains a description of the socio-demographic characteristics of the respondents from both samples. For comparison purposes, the same characteristics are presented for all Kentucky households according to the 1990 Census, the March 1997 Current Population Survey (CPS), and the Fall 1997 Kentucky Poll, which is conducted semi-annually by the University of Kentucky Survey Research Center. Data in Table 1 indicate that respondents to the all household survey were older and had higher incomes than respondents to the 1997 CPS for Kentucky. The median age among respondents to the UK Arts Survey of all Kentucky households was six years older than in the CPS, while median household income was roughly $5,000 higher. Consistent with their higher average incomes, respondents to the all household sample of the UK Arts Survey were also more likely to have a bachelor’s or master’s degree and less likely to be a high school dropout or to have only a high school diploma. This suggests that there was some response bias in the UK Arts Survey of all Kentucky households, and responses will be somewhat biased to the characteristics and preferences of older and wealthier households. It is expected that individuals more interested in the arts would be more likely to take the time to complete the survey, and wealthier households are more likely to attend arts events. In addition, older individuals may have a lower opportunity cost to completing the survey, which would lead to higher return rates among older households. Finally, it should be noted that higher levels of education and median household income among arts patrons cannot be assumed to be a sign of response bias, since higher education, income, and age are all characteristic of arts patrons (Throsby and Withers, 1979).

Both the all household sample of the UK Arts Survey and the Kentucky Poll found that a similar percentage of households had attended arts events during the last year, 48 percent% versus 47% percent. Both surveys also found similar median incomes and education levels, with slightly higher values in the UK Arts Survey. This result indicates that response bias in the UK Arts Survey was no worse than one would encounter in a statewide telephone survey such as the Kentucky Poll.

Survey responses reported in Table 1 indicate some of the socio-economic characteristics of three groups of respondents to the survey: 1) respondents to the all household survey who had not recently attended an arts event, 2) respondents to the all household survey who had attended an arts event, and 3) respondents to the patron survey. These three groups clearly differed in terms of income and education levels, which would influence the level of support that these groups provide to arts organizations. Furthermore, the three groups show differing levels of interest in the arts, which will also affect the use value each group receives from the arts amenity. One indicator of support for the arts is the donations that each group had made to arts events over the previous 12 months. Along with socio-economic characteristics, these donations, both monetary and in-kind, are discussed below. Findings show a large difference in the level of support for the arts.

Using results from the UK Arts Survey, Table 1 shows that residents who had attended arts events in the previous 12 months had higher education and income levels than all residents. The arts attendees had higher levels of education and higher incomes. Note also that the Kentucky Poll also found higher levels of education among arts attendees.

Higher income and education levels among resident households that attend arts events should translate into higher levels of support for arts organizations among these individuals (Throsby and Withers, 1979). Moreover, by attending arts events, these households have indicated an interest in use of the arts amenity, which also should translate into greater levels of support for arts organizations. Data on donations to the arts gathered in the survey of all Kentucky households suggests that households that attend arts events make greater donations in support of the arts. On average, all households made monetary donations of $37 annually to arts organizations in the preceding 12 months. Among households that had attended an arts event in the last 12 months, the average annual monetary donation was $72. For households that had not attended an event in the last 12 months, the average annual donation was $2. In contrast, patron households on average donated $230 in money each year to arts organizations. For in-kind donations, the annual average for all households was $8, the average for households that had attended an arts event was $15 annually, and the average for households that had not attended an arts event was $1 annually.

While attendees of arts events had higher education and income levels than the average respondent to the UK Arts Survey of all households, they were still very different than arts patrons. Arts patrons who responded had a median income that was $15,000 higher than for attendees identified in the all household survey. In addition, twice as many arts patrons than attendees had a bachelor’s degree education or higher. These socio-demographic differences portend a higher level of support for the arts among arts patron households than average Kentucky households, even for households which had recently attended an arts event. In addition, patrons also would be expected to have a higher level of support simply because they have been identified as a group of people that have shown a great interest in the arts.

Survey evidence on donations by patron households suggests a much greater level of support for the arts among patron households. Patron households on average donated $230 in money each year to arts organizations while making in-kind donations of $31. These figures are four to six times higher than the level of donations in the average Kentucky household.

This section presents the results of an analysis of survey data using both nonparametric and parametric techniques. First, a nonparametric technique is used to analyze respondent WTP for changes in the level of arts performances. Next, a logit model is utilized to examine how the probability of agreeing to a requested donationWTP varies over factors such as price, income, and consumer intensity of use (of the arts). Coefficients from the logit regression then can be used to estimate how WTP varies with change in the number of arts performances, price, income, and intensity of use.

Our analysis estimated a mean WTP among all Kentucky households from $6 to $27, depending on the estimation technique used and on whether the scenario discussed is to increase arts performances by 25 percent%, or to avoid a 25% percent or 50% percent decrease in the number of performances. Among arts patron households, the mean WTP ranges from $61 to $132. In addition, consumer demand for arts performances in large part follows a predictable pattern. The likelihood of respondents agreeing to make the donation that is requested risefalls as the size of the donation decreases. The likelihood of agreeing also rises with the scale of the scenario, that is, the likelihood is higher to avoid a 50 percent% decline in performances than to avoid a 25 percent% decline in performances. The mean WTP rises with income, and arts patron households have a much higher WTP than all households. WTP rises with on-site use factors such as frequency of attendance. The WTP also rises for arts patrons households with off-site use such as watching arts events on television or reading about the arts in newspapers and magazines.

In the analysis that follows it should be noted that responses from a number of households in both survey samples were excluded because respondents were identified as "protestors." This term refers to respondents who appeared to reject the contingent valuation exercise. As a result, their responses were not a reflection of their WTP to support arts performances and exhibits.

Respondents who said they would not give any donation — regardless of the amount — because they do not value the arts were not considered protestors. The same was true of respondents who indicated they did not want to contribute because they did not attend arts activities or because they considered arts an entertainment but not a necessity. In addition, people who said they could not afford to donate the specified amount were not considered to be protesters. All of these answers simply indicated that respondents had a low valuation of arts performances. Altogether, protestors accounted for 26 percent% (43 of 168) of usable all household surveys and 16% percent (54 of 335) of usable arts patron households. This percentage of protestors was similar to that found in another contingent valuation survey of Kentucky households (Ready, Berger, and Blomquist, 1997).

Data from contingent valuation surveys represent respondent evaluations of a hypothetical market rather than observations of actual economic transactions. This creates a concern when using contingent valuation data as to whether the data on which results are based follow the basic premises of consumer theory, such as falling demand with price. One advantage of a nonparametric analysis of contingent valuation data is that the response to price can be directly observed in the data. This creates an additional reason to conduct a nonparametric analysis beyond the usual motivation to avoid restrictions due to functional form.

The nonparametric technique for analyzing respondent WTP is to develop survivor curves showing the likelihood of agreeing to make the requested (hypothetical) donation as a function of the bid asked, that is, as a function of how much the respondent is asked to contribute. Thus, for each bid that was asked, whether $10, $25, $50, $75, $150, $500, or $2,000, we can calculate the percentage of respondents who were willing to pay the requested bid. These survivor curves are important for at least two reasons. First, we can examine whether respondent bids are following the expectation of consumer behavior that the likelihood that a particular person would agree to make the requested bid falls as the bid price rises. Second, it is possible to estimate mean WTP by examining the area under the survivor curve.

Figure 1 illustrates the survivor curves for each of the six scenarios examined in this research. Survivor curves are pictured for both all households and arts patrons households for all three scenarios: fund a 25 percent% increase in arts performances, avoid a 25% percent decrease in arts performances, and avoid a 50% percent decrease in arts performances. Note that the survivor curves illustrate the expected pattern that the likelihood of an affirmative response falls as the bid rises. In some survivor curves, however, portions of the curve are smoothed, meaning that the likelihood of an affirmative response was averaged over several bid levels in order to preserve the downward (or at least horizontal) sloped shape of the curve (Johannesson, 1996). In these curves, the actual, non-smoothed likelihood is also presented for each bid using points off the curve. Note also that in all cases the seven prices that were used were sufficient to bound the maximum WTP among sampled respondents. In other words, no respondent was willing to pay the maximum "bid" of $2,000 annually. This result allowed our bounding the survivor curve on the x-axis and facilitated calculation of the mean WTP, or the area under the survivor curve.

For the survivor curves from the all household survey, it was possible to determine the x-axis intercept by selecting the midpoint between the last bid where a respondent gave an affirmative response ($50 or $75) and the next highest bid amount. Similarly, for arts patron households, the midpoint between the $500 and $2,000 bids was used, or $1,250. Choosing such a uniform x-intercept insured that the measured mean WTP between the three scenarios was not affected by the choice of a different x-axis intercept for each art patron household survivor curve. The y-axis intercepts were determined by continuing the slope of the survivor curves between the $25 and $10 bids back until reaching the y-axis. This approach resulted in y-axis intercept values lower than 1, reflecting the fact that some households would have a WTP of $0.

For all Kentucky households, in the top row of Figure 1, a relatively high percentage of respondents was willing to give $10 annually, but the likelihood of an affirmative response fell thereafter. No respondent was willing to pay more than $75 annually in any of the three scenarios. The likelihood of an affirmative response fell consistently with price in the 25 percent% increase and 25% percent decrease scenarios, although more smoothing was required in the 50% percent reduction scenario.

For arts patron households, affirmative responses are much more likely among patron households over the $10 to $500 price range. This result is not surprising since these households are much more likely to attend arts events than the average Kentucky household. In addition, arts patron households on average have higher incomes and higher education levels. Furthermore, the percentage of affirmative responses from arts patrons households falls very consistently with the increase in donation requested in all three scenarios. This result is consistent with respondents’ making rational valuations when responding to the survey.

The mean WTP for each scenario is the area under each survivor curve pictured in Figure 1. In Table 2, mean WTP is presented for each of the three scenarios for both survey samples. As would be expected, the mean WTP of arts patron households was substantially higher than that of all households, roughly 5 to 13 times greater than that of all households depending on the specific scenario. Note also that both all households and arts patron households exhibited a higher WTP to avoid the 50 percent% decline than the 25% percent decline, a result that would be expected for a scenario with more substantial decreases in performances.

Parametric analysis of survey results presents an opportunity to analyze how WTP is affected by the characteristics of Kentucky households. Two broad groups of characteristics are of interest. The first group includes the basic demographic factors such as household income and education of the survey respondent. It is anticipated that interest in the number of arts performances available would rise for higher income and more educated households. The second group of characteristics is the household’s actual intensity of use of arts performances and exhibits. This refers to measures of "on-site" use such as whether members of the household attend arts events and how frequently they attend. It also refers to "off-site" uses such as whether household members still "consume" arts performances and exhibits even when they do not attend, through activities such as reading about the events in newspapers and magazines or enjoying arts events on television or radio. WTP to support an increase in the number of performances and exhibits, or prevent a decrease, is expected to rise with the intensity of household use. This leads to the following initial regression framework for WTP:

, (1)

where X₁ is household income, X₂ is variable for education, X₃ is a variable for household attendance of arts performances or exhibits, and X₄ is a variable for off-site use of the arts through newspapers, magazines, radio, or television. The linear form in Equation 1 is useful when calculating mean values for WTP, as is explained below.

Results of the regression of an equation similar to Equation 1 can be used to calculate mean WTP under each of the three scenarios for both all households and arts patron households. For this calculation, we assume that respondent willingness-to-pay follows a logistic distribution. Under a logistic distribution and given the particular bid requested for each respondent, the probability of an affirmative answer can be expressed as:

(2)

The X refers to the right-hand side of Equation 1 above plus an additional variable for the bid requested of a particular survey respondent. As would be expected, and as was illustrated in the nonparametric analysis above, the probability of acceptance can be strongly influenced by the magnitude of the bid requested. This explains why the amount of the bid was added to the household characteristics in Equation 1 to define X in the logistic regression:

(3)

The variable X₅ refers to the size of the bid, whether $10, $25, $50, $75, $150, $500, or $2,000.

We assume that the minimum WTP among respondents is $0. While some households will have zero values for use value, option value, and existence value in arts performances, it is less clear that any households would assign a negative value to arts performances. Given a $0 minimum bid, the formula for mean WTP (Johannesson, 1996) is

(4)

The bars over the variables indicate that the mean values are used.

To estimate the coefficient values necessary to calculate mean WTP, we estimated an equation similar to Equation 1. As explained above, an additional variable for the magnitude of the bid requested also was added (X₅). Furthermore, survey responses for all households and for arts patron households were pooled across all three scenarios to increase sample size. This pooling made it necessary to add dummy variables for the 25 percent% increase in performances and exhibits scenario (X₆) and the 50% percent decrease scenario (X₇), with the 25% percent decrease scenario as the omitted category.

The income variable (X₁) contained the cell mean of the income category that the respondent selected from the survey form. The education variable (X₂) indicated years of schooling. The attendance variable (X₃) indicated the number of arts performances or exhibits that members of the household had attended in the last 12 months. The level of attendance was found to be superior to a dummy variable indicating whether or not a household member had attended an event in the last 12 months. The off-site use variable (X₄) was the average hours spent per week reading, viewing, or listening about the arts.

Regression resultsThe logistic parameter estimates are reported in Table 3 with standard errors in parentheses. The parameter estimates in Table 3 provide an estimate of the effect of the X variables on the relative probability of answering yes on the contingent valuation question (Maddala, 1983, p. 29):

¶ ln (Pr(Yes)/Pr(No))/¶ X_i = b_i (5)

For example, attendance at another arts performance in the all household sample (first column of Table 3) is associated with an increase in the natural log of the probability of answering yes to the contingent valuation question of .130 (b₃), or approximately a 13 percent increase in the relative probability of making the requested bid, holding the level of the bid and other variables constant.

It should be noted that the sample size reported for each regression is lower than the total number of returned surveys, due partly to the elimination of "protestor" surveys. Where possible, dummy variables were employed in order to use observations with missing variables but this was not possible when the dummy variables were perfectly correlated with the dependent variable.

In Table 3, tThe negative and statistically significant values for the coefficient on the bid variable (b₅) indicate the expected result that the probability of agreeing to make the requested bid will fall as the bid rises. Note that the magnitude of the coefficient on the bid variable is much larger for all households than for arts patron households. As might be expected, this suggests that the typical Kentucky household is much more sensitive than the typical arts patron household to the "price" they are asked to pay to expand the number of arts performances and exhibits, or to maintain the existing number of performances and exhibits. For example, if a Kentucky household were asked to make a $30 bid rather than a $25 bid, the probability of a yes response would fall by 2.7 percent% but would fall by just 0.8 percent% for an arts patron household.

For arts patron households, household income was a significant variable in predicting the probability of agreeing to make the requested bid. This suggests that rising income would have a substantial impact on WTP. For instance, the elasticity of the change in mean WTP in response to a change in mean income was 0.49 for arts patron households. This positive elasticity value indicates that mean WTP to fund an increase in performances, or to avoid a decline in performances, should rise steadily as mean income increases. While this elasticity is less than unity, the estimate was likely depressed given that the income variable was based on cell means rather than being a continuous variable. As would be expected, the income elasticity estimate is much lower in the case of the all household regression (0.09), where the income variable was insignificant. The education level variable was not a statistically significant variable in either equation,. although the coefficient had the expected sign in the all household equation.

The number of performances attended was a significant variable for each sample. In addition, the off-site use variable was a significant variable in the regression for arts patron households. Overall, these results confirm the expectation that, even after accounting for household income level, households that use arts performances and exhibits will have a higher WTP to support an increase or to avoid a decrease in performances. Furthermore, it is interesting to note that in the case of arts patron households, this appears to be true when households use arts performances off-site by reading about or watching them as well as when household members attend an event.

Regression results also suggest some difference in WTP under the three alternative scenarios included in the survey. although the measured differences were not statistically significant. For all households, estimates indicate that Kentucky households would pay much more to avoid a reduction in performances than to fund additional performances. The coefficient reported in Table 3 translates into an estimate that the average household is willing to pay roughly $5 more annually to avoid a 25 percent% decline in arts performances than to fund a 25% percent increase in the number of performances. Estimates further indicate that WTP rises with the scope of a possible decline in performances and exhibits. Coefficients in Table 3 translate into an estimate that the average Kentucky household is willing to pay roughly $15 more to avoid a 50 percent% decline in the number of performances and exhibits than to avoid a 25% percent decline.

For the arts patron sample, the coefficients for the scenario dummy variables are small and insignificant. One noteworthy finding in Table 3 is that the estimates indicate that arts patron households may be willing to pay more to expand the number of performances and exhibits than to avoid a decline.

Coefficients from Table 3 can be used to estimate mean WTP for all households and arts patron households under each of the three scenarios. Table 4 contains these results, which are roughly similar to those in Table 2 in terms of the ranking of mean WTP in the three different scenarios. Furthermore, for all households, the magnitude of the mean estimates are very similar using both the parametric and nonparametric approaches.

For arts patron households, however, mean estimates are lower using a parametric approach than a nonparametric approach. This difference may result due to the large weight placed on responses to bids asking for $500 in the nonparametric results. In the nonparametric approach, a substantial portion of the area under the bid curves occurred around and after the $500 level (see Figure 1). In each of the three scenarios, this result occurred due to only one affirmative response for a $500 bid, which had a substantial impact on the measured mean WTP. In the parametric approach, coefficient estimates were selected to fit data at all bid levels, which may have placed less weight on responses at the $500 level.

Another interesting point is to look at thecomparison can be made between mean WTP estimates reported in Tables 2 and 4 in the context of theand actual donation behavior reported by survey respondents. Mean WTP to avoid a 25% percent decline in the number of performances was $12 on average for all households, while the mean WTP to avoid a 50% percent decline was ranged from $254 to $27, depending on whether the parametric or nonparametric estimate was used. As reported earlier, survey responses indicated that all households had made monetary donations averaging $37 over the 12 months before filling out the survey. WTP estimates were lower than reported donation behavior but of a similar consistent with the magnitude of actual donation behavior.

Mean WTP to avoid a 25% percent decline in the number of performances was $61 to $93 per year for arts patron households, depending on whether parametric or nonparametric estimates were used. WTP to avoid a 50 percent% decline ranged from $70 to $132. Survey responses indicated that arts patron households made monetary donations averaging $230 in the previous 12 months. Again, estimated mean WTP was lower but of a similar magnitude. Furthermore, the ratio of mean WTP between arts patron households and all households is on average consistent with the 6 to 1 ratio ($230 to $37) that was found in reported donation behavior. Finally, while there is no theoretical reason why these donations and WTP should be equivalent, the similar magnitudes of reported WTP and reported donation behavior supports WTP results.

As with the observed donation behavior of survey respondents, WTP is expected to differ between those households that have attended arts events versus those that have not. Attendee households, after all, obtain a use value from arts performances and exhibits, and therefore, are likely to assign a higher WTP to preserving or expanding the number of arts performances.

The coefficient on the attendance variable in the WTP equation can be used to estimate WTP for attendee and non-attendee households. Table 5 shows mean WTP for all households overall and for attendee and non-attendee households. There is a large difference in estimated WTP between attendee and non-attendee households. Depending on the scenario of performances to be retained or expanded, mean WTP among attendee households ranges from 80 percent% to 170% percent greater than WTP among non-attendee households. This result is expected, although the difference is not as large as was found for reported donations, which were discussed above. In that case, donations in the preceding 12 months were just a few dollars on average for non-attendee households and average donations for attendee households were approximately 30 times greater.

Nonetheless, estimates of mean WTP among non-attendee households indicate that households that do not use arts performances, at least recently, are still willing to make smaller payments to retain or expand the number of performances. While these households do not receive use value, they appear to perceive an option or existence value for arts performances. The magnitude of this option and/or existence value ranges from just a few dollars to nearly $18 annually, depending on the scenario presented.

Donations to arts organizations can be considered as simply another way in which households spend their money, that is, another kind of consumer expenditure. Thus, these expenditures can be viewed within the context of consumer expenditure theory, where households make a tradeoff regarding which goods or services to purchase or support. In the case of the arts, WTP to support the arts can be viewed as a component of household spending on entertainment. In particular, mean WTP can be compared with a consumer’s entertainment expenditures on other entertainment goods such as movies, amusement parks, recreation, and arts performances and exhibits (as opposed to entertainment expenditures on television sets, pets, etc). Indeed, the survey specifically asked respondents to consider that the money they donated could instead be spent on entertainment expenses such as movie tickets or vacations, which contain both transportation and entertainment expenses. Therefore, how does mean WTP compare with an average household’s expenditures on visiting entertainment venues?

Expenditure data was collected using the most recently available U.S. Consumer Expenditure Survey (U.S. Bureau of Labor Statistics, 1998). The data used were for Consumer Expenditure Units (roughly equivalent to households) headed by persons ages 45 to 54. Data were for the United States from 1995, the most recent year available. Regional data were available but not by age cohort. This age cohort was selected because it contained both the mean age among respondents in the all household survey and had an average unit income quite close to the average household income in the all household survey. From these data, the average annual expenditure for fees and admissions to entertainment venues was $585.

We used mean WTP values from the parametric analysis for all households, rather than arts patron households, because arts patron expenditure patterns may differ significantly from that of the average consumer. Recall that mean WTP was $6.21 to fund a 25 percent% increase in arts performances, $11.44 to avoid a 25% percent decrease in performances, and $26.76 to avoid a 50 percent% decrease in performances. Under these alternative scenarios, mean WTP values account for from 1% percent to 5% percent of consumer expenditures on entertainment fees and admissions, a modest share of this spending category.

The mean WTP values that have been estimated from the all household sample represent the average value that households in Kentucky place on expanding or maintaining a particular percentage of arts performances in the state. These estimates of mean WTP can be used to develop estimates for aggregate national WTP to expand or maintain a given percentage of arts events, by multiplying the mean WTP estimates for Kentucky by the total number of households in the United States. Such an approach implicitly would assume that mean WTP is similar in Kentucky and other parts of the nation. In fact, use of Kentucky averages may represent a lower bound estimate given the lower income and education levels in Kentucky, and perhaps, a smaller public arts good, that is, a lower level of arts performances and exhibits available to state residents.

The estimated national WTP to expand or maintain arts events can be obtained if the mean WTP estimates for Kentucky residents are used to estimate aggregate WTP across the approximately 98.7 million households in the United States Kentucky (U.S. Department of Commerce, 1998). National WTP to expand the number of arts performances and exhibits by 25 percent% would be estimated as $612.9 million. National WTP to avoid a 25% percent decline in the number of arts performances and exhibits would be estimated as $1,129.1 million. National WTP to avoid a 50% percent reduction in arts events would be estimated at $2,641.2 million.

A statewide estimate of household WTP to expand or maintain a particular percentage of arts performances could be obtained by multiplying mean WTP values by the number of households in Kentucky. For example, the statewide estimate of WTP to avoid a 25 percent% decrease in performances and exhibits is estimated to be $16.9 million based on 1.478 million households in Kentucky (U.S. Department of Commerce, 1998).

Statewide WTP could also be used in a benefit- and cost analysis. Statewide WTP to avoid a decrease in performances is a measure of how much benefit households derive from maintaining these performances. Thus, statewide WTP could be compared to an estimate of the cost of support for arts performances and exhibits to yield a cost versus benefit comparison. In particular, the WTP to avoid a 25 percent% decrease in the number of performances could be compared to the cost of providing 25 percent% of performances.

The cost of supporting 25 percent% of existing arts performances and exhibits can be estimated based on the findings of a recent study into the revenues of Kentucky arts organizations (Thompson, Berger, and Allen, 1998). That study found that these organizations had annual revenues of approximately $101 million.,

Based on these figures, it is possible to develop a range of estimates for how much it costs to support 25 percent% of existing arts performances and exhibits. One estimate could be derived based upon the assumption that the arts organizations cost structure represents about 50 percent% fixed costs and 50% percent variable costs and that only the variable costs would be affected by the 25% percent decrease in existing performances and organizations. Therefore, considering only variable costs, it would cost 25% percent of $50.5 million, or $12.6 million, to stage 25% percent of existing performances. Put another way, 25% percent of existing arts performances and exhibits would not occur if $12.6 million in revenues were lost. This assumption may be most appropriate if that revenue comes from government grants and individual donations, rather than other sources such as ticket sales, concessions, and advertising revenue. These grants and donations often represent basic underwriting that allows organizations to continue or to conduct a particular show or performance series.

Under this benefit- and cost scenario, the annual net benefits of avoiding a reduction of 25% percent of arts performances and exhibits in Kentucky would be $4.3 million ($16.9 million – $12.6 million). If we consider the expenditures by arts organizations in the entire state, then this relatively small net benefit may be consistent with a relatively economically efficient allocation of resources.characterizes an efficient result. In other words, the These findings suggest that themarginal benefits from government or individual grants to support Kentucky arts organizations are close to the marginal costs of these grants. It must be remembered, however, that the cost information presented here is illustrative. In particular, recall that all of these cost estimates rest on the estimate that Kentucky arts organizations have annual revenues of $101 million, and that a 25% reduction in funding would lead to a 25% reduction in the variable costs and, hence, in the number of performances. Modest c Changes in either of these cost assumptions used here could yield different results, including cases in which the estimated marginal costs that are greater than the marginal benefits that have been estimated.

This paper has used the contingent valuation method to determine how much residents of a state would be willing to pay to support additional arts performances and exhibits or to avoid decreases in existing performances and exhibits. This was accomplished through separate surveys of all households in Kentucky and of arts patron households in Kentucky. This paper is among the first studies to uses the contingent valuation method to analyze the value of cultural amenities,. which haveThe method has primarily been used to analyze the value of environmental amenities.

Moreover, this paper is unique in that it analyzes the value the public places on the composite arts good rather than specific arts entities and, hence, is useful for analyzing the public’s value on changes in across-the-board funding for arts agencies, rather than just funding for individual agencies or organizations. Overall, this method was effective for analyzing the arts. In particular, survey responses conformed to the expectations of consumer behavior. For example, the likelihood that respondents would agree to donate money to support the arts fell as the size of the requested donation increased.

The study used both parametric and nonparametric techniques to estimate mean willingness-to-pay (WTP) to support the arts and reached similar estimates with each technique. Estimates of mean WTP to support a 25 percent% increase in arts performances and exhibits ranged from $6 to $8 annually per household while estimates of mean WTP ranged from $11 to $13 annually to avoid a 25 percent% decrease in performances and exhibits, and from $254 to $27 to avoid a 50 percent% decrease. Mean WTP was 43 to 123 times higher among arts patron households than among all households.

We found that mean WTP rose with the number of arts performances attended by household members. WTP to support arts performances also increased with the level of household income for arts patron households. Furthermore, for arts patron households, WTP rose as households consumed arts performances in less direct ways such as listening to performances on the radio, watching on television, or reading about performances in the newspaper or in magazines.

Overall, the contingent valuation method was effective for analyzing the arts. Moreover, this paper is unique in that it analyzes the value the public places on the composite arts good rather than specific arts entities and, hence, is useful for analyzing the public’s value on changes in across-the-board funding for arts agencies, rather than just funding for individual agencies or organizations.

25% Increase in Performances (N=47) $8.36