The field of cultural economics has had as a central concern the question of public funding of the arts. In general there have been two streams of analysis, which I will call the welfare economics approach and the public choice approach. In this paper I want to suggest that each of these methods leaves many interesting questions unanswered, and that a transaction cost analysis, drawn from work in the new institutional economics literature, will provide the most fruitful avenue for further research on public funding for art in general, and for state and provincial arts councils in particular.
I will begin by reviewing briefly the central results of welfare economics and public choice when applied to public funding for art, and the limitations of each way of studying the question. I will then describe and assess the transaction cost approach. Later in the paper, I will use the Saskatchewan Arts Board as my ‘case study’. I hope this single example will persuade readers of the possibilities for research in state and provincial arts councils, in terms of comparative analysis and possibly in terms of uncovering ‘best practices’.
This paper will, I hope, raise more questions than it answers. The primary goal is to suggest a research framework, one that will have broad application to arts organizations in the public, nonprofit, and commercial sectors.