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The economics of cultural goods
P.L. SCANDIZZO
HOW TO DEFINE THE CULTURAL MARKET
Cultural Economics regards culture as an economic activity and
an engine of economic development.
We refer to the product of culture as "cultural goods”, for
example, monumental, archaeological and historical goods, which
constitute the heritage of previous generations.
Cultural Economics concerns the economic activities that are
responsible for the fruition and the accumulation of culture, the
supply of cultural goods and cultural services, and the
determination of related market and non market values.
Cultural economics also studies the role of the government and
public sector in regulating and securing a supply of cultural
goods,
in
accordance
to
social
standards.
HOW TO DEFINE THE MARKET
The cultural “value”
• Promoting culture and local traditions is a way to
value the historical journey that allows a
community to exist and to recognize its own
identity
Culture is one of the key
means
of
economic
development
• by evaluating the contributions of cultural
goods, it is possible to identify a process
of social aggregation and economic growth,
based on the accumulation of culture and
its fruition from the present generation,
which will also benefit future generations.
• every strategy of protection, safeguard and
conservation of cultural goods implies the
need
for
human
and
economic
involvement that is dependent on present
generations, but whose benefits will also
accrue to future generations.
HOW TO DEFINE THE MARKET
The crucial problem, is
to create a sustainable
accumulation of cultural
goods.
• it is first necessary to carry out an
informed, strategic and systematic
management of cultural and artistic
heritage, stimulating the creation of a
network and synergies between the
institutions and all the agents
involved.
• It is necessary to develop local
abilities of combining culture and
economic development, that is, to
form and inform agents of the region
concerned, so that they are able to
operate effectively in this direction.
HOW TO DEFINE THE CULTURAL MARKET
There are different perspectives through which it
is possible to analyze the distinctive sector of arts
and culture
 The pure economists' perspective (for example,
Throsby, 1994; Scandizzo, 2000), according to
which culture and art correspond to that form of
"consumption of the mind" capable of selfsustaining itself (Schelling, 1991);
 The sociologist perspective, which regards
cultural and artistic goods as an anthropological
product characterizing a specific stage of
evolution of a human society (Adorno, 1985);

HOW TO DEFINE THE CULTURAL MARKET


The psychologist perspective, which is
interested, for example, with the cognitive
aspects or the origins of the conscience
(Newman, 1948).
Since Galbraith, however, economists
developed a growing interest in arts and
culture, both from the point of view of the
application of economic theory, and also
related to the analysis of the peculiar
problems of arts and culture in market
economies (Throsby, 2001).
HOW TO DEFINE THE MARKET
The behavior of a
representative
"consumer
of
culture" :
- to focus on the
fruition of arts;
-to focus on the
aesthetic
experience and
its
compound
nature.
• co-existence of three components:
the desire to exit ordinary reality
(the "evasion factor"), the quest for
joy (the "enjoyment" factor), and the
need to increase one's level of
information and understanding (the
"knowledge" factor).
• there are multiple alternatives to
consider, just as there are different
consumer categories, many of which
are negative: the consumer who
searches for culture but remains far
from it due to a wrong access route,
the consumer who uses it
improperly, the consumer who
collects art only for cultural status
and reasons of social conformity.
HOW TO DEFINE THE MARKET
To deal with the
motivations and
the
possible
problems
of
cultural
access,
we
cannot
disregard
the
complex "political
economy of the
consumer
of
culture".
• the analysis of cultural choices and
the
frequency
of
cultural
consumption become fundamental to
understand culture as an economic
good.
• A global relationship between
consumers and culture exists, even
though it manifests itself only
through a few market segments.
• Cultural consumption displays effects
on collective welfare in spite of
the complex and problematic
relation of each consumer with the
different languages of art and culture.
Furthermore, cultural consumption
produces effects on welfare that are
independent from the maximization
of private needs.
HOW TO DEFINE THE MARKET
Culture generates social
direct
and
indirect
consequences
on
consumers and other
agents.
• The prestige of a city or a nation, the promotion
of tourism and economic activities that gravitate
around tourism, social activity, etc., are only a few
examples.
Culture is not necessarily
knowledge (perhaps the
most
intangible
and
precious good), at least in
the sense of rational
accumulation of voluntary
information to further our
understanding of reality.
• Culture is neither a simple exercise of the arts, nor
a reproduction or reiteration of artistic messages,
nor a contemplation of beauty or representation of
works of present or past artists. In a peculiar
way, however, culture is an enjoyable and cumulative
good with some of the above characteristics.
HOW TO DEFINE THE MARKET
Cultural Heritage is the legacy of
physical artifacts and intangible
attributes of a group or society
that are inherited from past
generations, maintained in the
present and bestowed for the
benefit of future generations.
Physical or "tangible cultural heritage" includes
buildings and historic places, monuments,
artifacts, etc., that are considered worthy of
preservation for the future.
"Natural heritage" is an important part of a
culture, encompassing the countryside and
natural environment, including flora and fauna.
This is often as an important component in a
country's tourist industry, attracting many
visitors from abroad as well as locally.
The heritage that survives from
the past is often unique and
irreplaceable, which places the
responsibility of preservation on
the current generation.
Grass roots organizations and
political groups have been
successful
at
gaining
the
necessary support to preserve
the heritage of many nations for
the future. Significant was the
Convention Concerning the
Protection of World Cultural
and Natural Heritage that was
adopted
by
the
General
Conference of UNESCO in
1972. Each of these sites is
considered important to the
international community.
HOW TO DEFINE THE MARKET
INTANGIBLE HERITAGE IS
- the
traditional forms of expression of many societies, many of which
are unique, are threatened by a trend towards cultural uniformity in
present-day society. The disappearance of this heritage would mean an
impoverishment of the cultural diversity of our world.
Includes intangible aspects of a particular culture, often maintained by
social customs during a specific period in history, the ways and means
of behavior in a society, and the often formal rules for operating in a
particular cultural climate.
Intangible cultural heritage is more difficult to preserve than
physical objects.
HOW TO DEFINE THE MARKET: Culture is a relational good.
Culture cannot be enjoyed outside a social
context, within which it is only possible to
conceive the abilities to surprise and to gratify.
•Culture is not an "intentional" good: it can flourish only if proper social
conditions are determined, as the indirect product of other human and civil
actions, in essential conditions of freedom.
Culture is not, however, a voluntary good. It cannot be
planned or constructed anew: unlike a road or a bridge. It
can only "flourish" under favorable conditions
•The production of culture is possible only if it involves, separately or
simultaneously, and in a spontaneous manner, those who produce and
consume it.
•Culture is always a choral work, which is created and grows as the indirect
output of other human and civil actions, in essential conditions of freedom.
HOW TO DEFINE THE MARKET: Culture is a relational good.
Culture is a public good because it
cannot be an object of private
appropriation.
.
• In economic terms, public goods are goods
characterized by non-rivalry in consumption and by
non-excludability.
• These characteristics, which can be presented at
different levels (according to whether the goods
are "pure" public goods), can reveal problems (the
so-called "market failure") and request the
government's intervention
HOW TO DEFINE THE CULTURAL MARKET
Culture as a local public good
• Culture is a public good, which at the same time, is global and
local.
• Its globalism derives from the fact that it directly appeals to
emotions, it overcomes cultural barriers and works at an essential
level, that of an "original shiver" and of the sharing of a common,
higher humanity.
• Culture is a public good that is often linked to a localized
concentration of human or social capital: therefore it is typically,
also a local public good.
• Culture answers a multi-faceted need and a productive capacity,
which links it to specific places within a community. This link is due
to the emergence of culture from a context of institutions and
relations and to the fact that it cannot be produced in the absence
of specific historical ingredients.
• For this reason, culture is a source of identity, which distinguishes
one community from another. It also marks the competitive
economic success of its territorial base, by attracting residents and
visitors according to its most congenial and admired features.
HOW TO DEFINE THE CULTURAL MARKET
Culture as Social capital
•Culture is a source of individual and collective
identity: it enriches and consolidates the social
capital of a particular community.
•The set of rules, of procedures, of reciprocal
feelings that are recognized by members of a social
group, forms the social capital of that group.
•it also forms the cognitive structure that each
member of the group can refer to in order to read
the society as an explicit representation of reality.
HOW TO ANALYZE THE MARKET
its value can not be
easily identified as many
of the places may not
enter markets, or do so
indirectly
and
imperfectly. And many
benefits are wholly
intangible.
• In economic terms, heritage values are measured in
terms of an individual's willingness to pay or accept
compensation. For example to evaluate a historic
heritage places, a person must be willing to pay an
amount of money to protect the place or willing to
accept an amount of money as compensation for its
loss
Heritage generates total
economic value for a
variety
of
potential
reasons.
• In the case of historic heritage, there are often benefits
associated with a heritage place's existence value (i.e.
knowing that culturally important resources are
protected) but are not captured in any market valuation.
While these un - priced values are difficult to reveal, they
have economic meaning nonetheless because any thing or
action from which individuals gain satisfaction is deemed
to be of value.
The literature generally
include in the total
economic
value
3
macro categories:
• direct use value;
• indirect use value;
• non-use value
HOW TO ANALYZE THE MARKET
Direct and indirect
use value
• are generally referred to together as 'use'
values.
• Each of these use and non-use benefits can
increase welfare and so each should, to the
degree possible, be recognised in any analysis.
• It should also be recognised that in some cases
the benefits may conflict and there may need to
be a tradeoff in choosing the degree of place
conservation and use.
• The distinction between personal and social
benefits is important because it can affect how
one looks at the merits of protecting various
heritage places.
The social value is the
sum of use value and
existence value;
• the private surplus by subtracting the costs
of conservation from the use value;
• the social surplus by subtracting the costs
from the social value.
HOW TO ANALYZE THE MARKET
Cultural goods
as intellectual
property
• Cultural goods, and the cultural sectors are
characterized reliance on intellectual property, which
serves as the "natural" material for most goods and
services.
• The natural material renders not only a high risk at
sector but also this intangible content of cultural
products has characteristics of an economic public good.
• So this kind of products or goods can potentially be used
or enjoyed by an unlimited number of people, without
depriving its owner of its use or enjoyment, for this
reason cultural goods are go through to free rider
effect.
• These free-rider risks mean that more than in other
sectors, is partial the possibility in recuperating the
effects, social and economic, of their work and is
impossible in preventing others from unjustly copying
and profiting from their products.
HOW TO ANALYZE THE MARKET
The high symbolic
value of cultural
goods and services
•the necessity for the consumer to shifts in
tasting and knowing cultural products, involve the
producer in innovation. Hence cultural
enterprises face markets with a higher degree of
uncertainty than those of more conventional
enterprises.
•The level of uncertainty faced varies between
the different cultural sub-sectors, with
uncertainty levels probably being highest in the
performing arts, audiovisual and publishing
sectors, but lower in the crafts sector, a cultural
sector that most resembles mainstream business
sectors.
HOW TO ANALYZE THE MARKET
Cultural goods and services generally have a very high
symbolic content with respect to their material content, which
renders the question of pricing problematic.
• The value of a cultural product is rarely determined
according to its functional and material qualities, as this kind
of content in cultural products is often relatively.
• The prices of cultural products are therefore to a large
extent determined by symbolic value, yet it is not easy to
determine a market price that can capture the symbolic,
social and merit value of cultural products.
• Whilst it is true that symbolic value is an aspect in the pricing
of non-cultural products too, notably through branding and
advertising, the symbolic value in these products does not
predominate to the extent it tends to in the cultural sector.
HOW TO ANALYZE THE MARKET
Cultural goods are also experience goods
• whose value can change over time, and is often determined
through the assessment of experts and opinion makers the
value of fine art, for instance is largely determined by critics.
• Thus the value of cultural products is often dependent
on information that is detached from their price.
• In theory, most cultural products can be priced as low as
required or as high as the market can bear, given that the
marginal costs of production are often negligible.
• Some goods, however, are subject to price regulations: this is
the case with books, for instance, on which governments
often place price limits.
• Whilst this practice "simplifies" the pricing process, it creates
a new problem by ignoring local purchasing powers.
HOW TO ANALYZE THE MARKET: "the stakeholders"
A new conception of the subjects involved in the project
• they are identified, in parallel with what is done with the enterprise as
holders of rights towards the project.
In the case of the enterprise, the holders of rights are called "stakeholders",
a word that denotes those who possess ("holders" a piece "stake" in) the
enterprise in the form of obligations, shares or other forms of legal or real
claims from a contract.
In the case of the project, the extension of the definition of stakeholders is
immediate
• for the part that concerns the rights that derive from financing the project,
• through the traditional form of corporate financing or the new more
refined forms, of project financing, in which the project becomes, de facto,
an enterprise.
HOW TO ANALYZE THE MARKET: "the stakeholders"
The stakeholders of the project include
:
• people whom the promoters and the financiers represent, or rather the positive or
negative beneficiaries, the taxpayers and, depending on the project, the consumers,
some categories of citizens, the workers who obtain employment as a result of the
project and so on.
• the concept of "empowerment", that appears more and more crucial in order for
the beneficiaries of a public project to assume an active position, to multiply the
benefits of the same project through a series of private actions capable of making
economic development endogenous.
HOW TO ANALYZE THE MARKET: the stakeholders
WHICH STAKEHOLDER
CHARACTERISTICS ARE
ANALYZED?
WHY IS
THIS
ANALYSIS
USEFUL?
• The
analysis
includes
such
stakeholder
characteristics as knowledge of the policy, interests
related to the policy, position for or against the
policy, potential alliances with other stakeholders,
and ability to affect the policy process (through
power and/or leadership).
• Policymakers and managers can use a stakeholder analysis to identity the
key actors and to assess their knowledge, interests, positions, alliances,
and importance related to the policy.
• This allows policymakers and managers to interact more effectively with
key stakeholders and to increase support for a given policy or program.
• When this analysis is conducted before a policy or program is
implemented, policymakers and managers can detect and act to prevent
potential misunderstandings about and/or opposition to the policy or
program.
• When a stakeholder analysis and other key tools are used to guide the
implementation, the policy or program is more likely to succeed.
HOW TO ANALYZE THE MARKET
Projects in the field of cultural goods present a complex set
of problems both for conservation and restoration, and for
fruition and value creation.
In the traditional economic approach, cultural heritage is
considered as a non-reproducible good, and a good that will be
destroyed if some preventive measures are not set up.
In the "sustainability" approach, instead, cultural heritage can be
considered as a stock of tangible and intangible assets, which may
generate new types of peculiar products for the local community,
such as human and social capital. If asset owners are able to
identify these products and to implement them, we enter in the
area of reproducible resources.
A project is a complex economic activity, through which scarce
resources are used, with the purpose of obtaining deferred
benefits. Both resources and benefits are normally, but not
necessarily, calculated in monetary terms.
This is a very broad definition that embraces all project types and
doesn't limit project activities to public intervention financed
with capital expenditures. The term project is defined as an
economic activity resulting in a specific construction, expansion
or change of a physical structure at least cost.
HOW TO ANALYZE THE MARKET
It is important to distinguish among projects, (or
project elements) that refer :
• to the production of goods and services;
• to the projects that can only be indirectly quantified
(for example: some types of social services, such as the
preservation of the environment, health or education).
Most importantly very few projects have a business plan
and most lack clear medium and long-term strategies.
HOW TO ANALYZE THE MARKET: the business plan
The business plan is the practical
application of the marketing strategy
and is informed by preliminary market
research.
• A good business plan provides an
overview of where a business is, how
it plans to position or reposition
itself, and how it seeks to attain its
business objectives.
• In general practice, business plans
cover a period between one and five
years long. It is crucial that the
business plan is updated regularly.
A business plan incorporates the following
components:
• A marketing plan: this is a schedule for
implementing the marketing strategy;
• A product development plan: this is a
schedule for implementing the required
production and design processes through
all stages from creation to the launch of
the final products;
• A promotional plan: this is necessary to
ensure that the promotion of a product
precedes its launch and continues until
the product is withdrawn from the
market.
• A distribution plan.
• The business plan should also indicate
how the cultural enterprise plans to
protect, manage and commercialize their
intellectual property assets for business
success.
HOW TO ANALYZE THE MARKET
When examining a project it is necessary to identify
the components that constitute functional units
• A functional unit can be defined as an action or a set of actions that, even
though belonging to a wider intervention, claims its own individuality and
integrity in terms of technical implementation and operational functionality,
and can therefore generate autonomous costs and benefits (presented in
terms of autonomous indicators of economic and financial benefit).
• A composite intervention is defined as a set of functional units, i.e. a set of
components, each having its own autonomy from the point of view of
technical implementation and the supply of economic benefits,
independently from the other interventions, even though all share common
objectives. Examples of components of composite interventions are: road
plans, reclamation projects, irrigation projects, all aimed at the final
objective of developing a given area.
• An integrated intervention is a set of separate actions, combined into a
principal intervention, of which they constitute the articulations autonomous under the technical-economic profile - relative to the
different benefits generated: e.g., a dam for multiple uses - water,
hydroelectric power, regulation of water courses, - each comprising specific
works that are connected in the principal structure.
HOW TO ANALYZE THE MARKET
The project itself presents more complex
economic and social aspects, and its success
depends, on the appropriate institutional and
historical combination, but also, in terms of
opportunities, on a new configuration of rights
and responsibilities.
Even if the division into separate phases or
stages is largely artificial, it helps to make the
concerted stakeholders understand that the
elaboration of the project is a process that
develops over time and that, once it is
completed, opens the possibility to continue
the work undertaken with another project.
HOW TO ANALYZE THE MARKET
The sequence of the operations is named "cycle",
being the same one for every project, repeats
itself in a cyclical way for the projects examined
in any given period and constitutes an organic
system of documentation of the information and
relevant analyses for the projects examined.
The project cycle emerges through the
elaboration,
implementation
and
retrospective
examination
of
the
investment. Its most important elements
are: information collection, analysis and
formulation of the decisions.
Even if the division into separate phases or
stages is largely artificial, it helps to make
the concerted stakeholders understand that
the elaboration of the project is a process
that develops over time and that, once it is
completed, opens the possibility to continue
the work undertaken with another project.
HOW TO DECIDE AMONG PROJECTS
To evaluate policies is necessary to build a "scenario“
A scenario can be defined as a set of events outside the
boundary of a policy or project (P/P), but, at the same time
significant to characterize its historical, economic and political
framework.
In order to elaborate scenarios, we should thus focus on
variables that have the highest potential for change, and try to
predict analytically their values at least in three basic cases:
• a best case (or utopian) scenario
• a worst case (dystopian) scenario
• most likely (middle case) scenario.
Scenario analysis should also focus on the common
characteristics that bind the variables together.
Yet another way in which the term "scenario" is used in current
business practice concerns the exploration of chains of events
contingent upon a single or a small number of macro-events of
exogenous and momentous nature.
HOW TO DECIDE AMONG PROJECTS
In order to develop
a economic scenario
we need
• to examine a number of features which depend
both on the exogenous variables and the
variables that are the object of choice.
• to use as an ordering principle, the dual concept
of opportunities and threats.
Opportunities and
threats.
• Is a way to select and classify events that may
occur, and, as a consequence of such a
classification, as an instrument to determine the
capabilities and the vulnerabilities that are in
place or may be developed as a result of the
opportunities and threats identified.
HOW TO DECIDE AMONG PROJECTS
Developing
capabilities
can be used to take
advantage
of
opportunities, or to avoid
threats.
• Capabilities are the trust of policies and
projects (P/P).
• From the point of view of the value created,
P/Ps can be seen as tools to create contingent
wealth;
• Contingent assets are thus created (or
destroyed) in the form of expected net
benefits, or in the form of options (the
capabilities created by the P/P in question, or
the capacity to gain by adapting to random
changes).
• Contingent liabilities are created (or
destroyed) either in the form of expected
claims of P/Ps stakeholders (including parties
not directly involved in P/P planning), or in the
form of options.
• "Threat" or "liability options" are a form of
external effects of full capacity (i.e. expected
capacity and capabilities) building. They may be
either the consequence of developing
vulnerabilities to existing or potential threats
as side effects of P/P implementation, or of
nurturing capabilities that may lead to hostile
actions on the part of some of the
stakeholders
HOW TO DECIDE AMONG PROJECTS
The concept of capability as "capacity to adapt" (or to react adaptively in a successful way)
is a generalization of the idea of management flexibility, which has been extensively used to
introduce real option theory in capital budgeting for business planning
Capabilities and options are
abstract concepts and can
be difficult to understand
and apply in specific cases
• They can be used as the main components of relevant scenarios only if
their definition comes from the stakeholders involved.
The
reasons
for
constructing scenarios by
interacting
with
the
stakeholders are several:
• First, defining who the stakeholders are, and what their
degree of participation and empowerment is, already a
way to find an effective first boundary for the P/P
examined.
• Second, because contingent wealth relates to property
or access rights of specific agents, or sets of agents,
scenarios that are predicated on capabilities and options
can only be defined in terms of these agents.
• Third, stakeholders are defined as agents who may hold
claims against the P/P in question. Once identified, they
may have the most interesting and useful knowledge on
the P/P itself, as well as on the surrounding
environmental, historical and political conditions.
Building scenarios by
•focusing on opportunities and threats has long been used in business
planning with the technique so called SWOT (Strenghts, Weaknesses,
Opportunities and Threats).
•Strengths and weaknesses are internal factors.
•Opportunities and threats are external factors.
HOW TO DECIDE AMONG PROJECTS: SWOT ANALYSIS QUESTIONS
To identify "strengths”
• What are the community's strongest
resources?
• What opportunities exist to
maximize the strength of this
resource?
• What resources could, with support,
promotion or investment, become a
strength?
To identify "opportunities“
• What opportunities exist for
maximizing, enhancing, or supporting
existing strengths that have been
identified?
• What improvements or support
could identified weaknesses benefit
from?
• What opportunities external to the
community can be identified for
each category?
•
To identify "weaknesses”
• What are the liabilities that can
limit achievement of local
economic development?
• What are the constraints that
restrict the accomplishment of
local economic development
initiatives?
To identify "threats“
• What
threatens
identified
strengths? What threatens the
realization
of
identified
opportunities?
• What weaknesses threaten to
become worse and under what
circumstances?
HOW TO DECIDE AMONG PROJECTS: OPTION ANALYSIS
Doing these questions for each factor Labor Market, Financial capital, Access to market,
Transportation, sites and Facilities, knowledge resources, Education and training, business climate,
quality of life, when and where it's possible, it's possible to begin the analysis to create the option
of the project. In order to fully develop a scenario from its initial form based on the factor
component definition and the SWOT analysis is necessary focus on the specific options.
An option is defined as the faculty, but not the obligation, to purchase (sell) an
underlying asset at a given price within a given time horizon. As a simple
extension of this concept, a real option can be defined as the faculty, but not the
obligation, of undertaking a given action or set of actions (i.e. a P/P) carrying a
given expected net benefit at a given cost. This is a wide encompassing definition
that can cover a plurality of real life situations, where uncertainty and the passage
of time are both important. of basic real options appear to be relevant in
economics.These are:
the option
to
abandon
the option
to
contract
the option
to switch
the option
to wait
the option
to expand
the option
to grow
HOW TO DECIDE AMONG PROJECTS: THE MAIN CLASSES OF
OPTIONS
Abandon
options
• Abandon options are important in capital intensive industries where
management would like to have the flexibility to capture the value for the
assets if their in-use value to the company falls; also in high variable cost
industries, the option to shut down is valuable. The option to either
contract or expand scale is a flexible means of dealing with changing
demand.
• This option exists when, if market conditions decline severely, management has the
opportunity to abandon current operations and obtain the resale value of capital
equipment and other assets in the second-hand market.
Contract/expa
nd option
• This option exists when, if market conditions turn out more favorable than expected,
the firm has the opportunity to expand. Conversely, if conditions are less favorable
than anticipated, the firm can reduce the scale of operations.
Switch option
• This option exists when an agent (a firm or a country) has product flexibility and can
change its output mix if prices or demand change unexpectedly. Alternatively, the firm
could have process flexibility and adjust the types of inputs in response to changes in
costs/supplies.
Defer/wait
option
• This option exists in the situations where the decision maker holds rights on
valuable resources, including land, capital, know how, specialized information and
planning. The decision maker can wait a certain length of time to see if exogenous,
uncertain conditions (e.g. market prices) justify constructing a building or a plant or
developing a new venture of some sort.
Invest/growth
option
• This option is present when an early investment (i.e R&D, lease on undeveloped
land or oil reserve, strategic acquisition, information network) is the prerequisite or
link in a chain of interrelated projects, and thereby opens up future growth
opportunities.
TWO ALTERNATIVE SCENARIOS FOR CULTURAL
GOODS
EXAMPLE: scenario I
• Given its broad base of archeological sites, monuments and art, the country
exercises an option of inward oriented growth by investing in preservation of
domestic values and local identity. As a consequence, trade and technological
capabilities are reduced and the outward oriented growth options are, at least
temporarily, destroyed. Investments in cultural sites are concentrated in maintenance
and restoration of heritage goods, increasing incentives to small artisans and
traditional production methods. Options are created by discouraging migration to
the towns and by expanding the agricultural frontier, distributing land to small
farmers and landless workers to increase productivity, and developing an agroindustrial and a rural small industry sector. Because of the emphasis on self reliance,
threat options deriving from the vulnerability to external shocks would have lower
values (or be out of the money most of the time). But vulnerability to internal
shocks such as positively correlated crop failures would increase.
• Higher population growth could also create more poverty and higher social tensions,
thus increasing the value of threat options from social and political unrest from
militant minorities. Failure to increase capability in agricultural production at the
same pace of consumption and population growth is also a threat option that could
jeopardize the sustainability of the path of development selected.
TWO ALTERNATIVE SCENARIOS FOR CULTURAL
GOODS
EXAMPLE: Scenario II
• The country exercises an option of outward oriented development with lower
population growth and high reliance on trade and tourism.
• This option would involve higher growth of non agricultural sectors, investment in
R&D, larger cities and some loss of regional identity. It would choose a higher, if riskier
growth path based on the development of human capital, in the form of an educated
labor force, technology and research. Cultural sites would be developed in a way that
encourages tourism and provides incentives to develop an adequate service network.
Emphasis would be on valorization of cultural heritage by promoting fruition and
brand loyalties. It would thus destroy the options of inward oriented development,
expansion of the agricultural frontier and extensive development. The country might
become more vulnerable to external shocks, at least in the short run, in the area of
food security, BOP equilibrium and foreign debt. While further growth options would
become available as the country successfully proceeds in the path selected, several
threat options would also be created.
• Because of uneven growth between the rural and the urban areas, the option to
migrate might be exercised to an extent that would not be sustainable without the
development of a sufficient capability in the cities. By polarizing the political process,
the option of social strife and global unrest could be a significant threat to further
growth.
HOW TO DECIDE AMONG PROJECTS: Cost Benefit Analysis
(CBA)
Cost Benefit Analysis (CBA) aims to
introduce discipline in the practice of
public
investment
planning
and
implementation.
It is translated in a process of systematic
comparisons, in every phase of which the
information of the preceding phases is used
for improving the efficiency of the whole
project.
• This is accomplished through a
process which regulates the way
projects
are
generated
and
implemented. It thus prescribes the
necessary characteristics for planning
and
implementation, with
the
objective of improving the allocation
of public and private resources.
• "'Efficiency
means exploiting economic
resources in such a way that 'value' human satisfaction as measured by
aggregate consumer willingness to pay for
goods and services - is maximized.“
(Posner, 1973, 2nd Edition)
• "The term efficiency, when used as in this
book to denote those allocations of
resources in which value is maximized,
has limitations as an ethical criterion of
social decision-making.“ (Posner 1973,
4th Edition)
HOW TO DECIDE AMONG PROJECTS: Cost Benefit Analysis
(CBA)
CBA presents at least four
distinct typologies, each based on
a different system of values
(prices) and of parameters of
evaluation:
• financial;
• fiscal;
• economic;
• political
The economic and financial evaluations
consist in comparing the costs and benefits
of a project
• If
there are several alternative projects, the
project with the greatest net benefits (B-C)
should be preferred.
•Uses prevailing market prices (current
and/or projected) to verify and appraise the
economic effects of the project based on
market conditions, both during the
construction and running phase.
HOW TO DECIDE AMONG PROJECTS: Cost Benefit
Analysis (CBA)
 The first step of any Cost Benefit Analysis is to define
what would happen with and without the project,
including any induced effects on private sector activity.
 The stage of project analysis consistst in the
identification and the measurement of costs and
benefits during the project life.
 The sum of the benefits minus the sum of the costs is
equal to the net benefit or project surplus, but cannot
be considered acceptable unless the flows related to
different periods over time are modified by multiplying
them by particular weights
 The project frontier can be defined as the set of project
effects that present continuity relations with both
internal and external effects.
HOW TO DECIDE AMONG PROJECTS: Cost Benefit
Analysis (CBA)
Financial CBA examines the results obtained from the point of view of the
economic agents involved in the project,
• To establish whether, and in what measure, project structure can
induce the economic agents to behave consistently with the
project objectives.
• In the case where inconsistencies are noted, the task of financial
CBA is to identify possible correctives.
• Financial analysis uses the essential elements of business
accounting (profit and loss accounts, balance sheets, flow of
funds account) to study project performance at market prices.
• While in some sectors this is enough to carry out the financial
analysis from the point of view of a single economic agent, in
others it is necessary to take into account the point of view of
several agents based on the specific financial objectives of each
one of them.
• the results of the financial analysis often different, depending on
the economic agent considered. These divergences may shed
light on the structure of the project as an act of economic policy
and, therefore, on the role of public intervention.
HOW TO DECIDE AMONG PROJECTS: Cost Benefit
Analysis (CBA)
Financial and fiscal analysis
Despite the fact that CBA finds its roots in taxation theory, few
manuals deal with tax and subsidy problems, and even a smaller
number provide techniques and application procedures.
Fiscal analysis studies the results expected from the
point of view of the public administration: costs, valued
in terms of fiscal revenue foregone (through taxexpenditures and/or different destinations of tax
revenues or other resources controlled by the public
operator), and the benefits in terms of future fiscal
revenues that will be obtained through the project (for
example, greater future proceeds from taxes on the
incomes of the people and the firms involved in the
project).
HOW TO DECIDE AMONG PROJECTS: Cost Benefit
Analysis (CBA)
The economic (and social) analyses examine the results
expected from the project and the related costs and benefits, in
terms of a social objective function for the community considered.
A social objective function expresses the objectives of a community (for
instance GNP growth, accelerated development of some regions, income
redistribution, etc.) in terms of their relative importance, as well as in relation
to the constraints on their attainment.
Where a social objective function is not explicit in documents of
general economic planning, or cannot be derived from them, it can
be hypothesized on the basis of a survey of opinion of the main
policy makers, so that the evaluation parameters, essential for the
economic analysis, can be derived.
HOW TO DECIDE AMONG PROJECTS: Cost Benefit
Analysis (CBA)
Economic analysis, consists of comparing the benefits and the costs
of the individual projects, in terms of the implied social objective
function.
Assuming that the economic policies establish the relative weight of each objective, the
results expected from the projects have to be valued by weighing their contribution to
GNP, to regional development and to providing basic goods to the poor and by
contrasting these results with the opportunity costs of the resources used by the project.
An unit of value (expressed in monetary terms at constant prices) will be set equal to the
value of a consumption unit at a certain level of income, or of public investment, or of
uncommitted foreign currency in the hands of the government.
An economic unit of account is necessary, because, as a consequence of public
intervention, as well as of economic policies, current market prices, expressed in the
usual monetary unit of account, do not reflect policy objectives for the medium and long
term and the constraints under which they can be pursued.
Financial, fiscal and economic analyses show the project, as a tool of economic policy,
under different angles - those of the economic agents involved in the project, of the public
administration, of the collectivity.
HOW TO DECIDE AMONG PROJECTS: CULTURAL
PROJECT'S TYPOLOGIES
Conservation
• Encompasses all aspects of protecting a site or remains
so as to retain its cultural significance. It includes
maintenance and may, depending on the importance of
the cultural art-fact and related circumstances, involve
preservation, restoration, reconstruction, or adaptation,
or any combination of these.
Preservation
• Maintaining the fabric of a place in its existing state and
retarding deterioration. It is appropriate where the
existing fabric itself constitutes evidence of specific
cultural significance, or where insufficient evidence is
available to allow other conservation processes to be
carried out. Preservation is limited to the protection,
maintenance, and, where necessary, stabilization of the
existing fabric
Adaptation
• Modifying a place for compatible use. It is acceptable
where the adaptation does not substantially detract from
its cultural significance and may be essential if a site is to
be economically viable.
Restoration
• Returning the existing fabric of a place to a known
earlier state by removing accretions or reassembling
existing components without introducing new materials.
It is appropriate only (a) if there is sufficient evidence of
the earlier state of the fabric, and (b) if returning the
fabric to that state reveals the significance of the place
and does not destroy other parts of the fabric.
THE END
THANK YOU!! THE CULTURE BE
WITH YOU!!