Generalised Cost Functions for Producers of Performing Arts – Allocative Inefficiencies and Scale Economies in Theatres

This paper examines the structure of the production of cultural services by using a generalised cost function and a panel data set of theatres. The main points of interest are: first, whether the production of theatrical performances is allocatively efficient, second, whether underlying production technology exhibits homotheticity with respect to output, and third, whether there exist economic gains from large scale production. The results of the analysis suggest that inputs are not combined in optimal proportions in light of prevailing market prices, that relative shares of input utilisation vary when output expands, and that there are scale economies in the production of theatrical performances.