The production structure for the performing arts is complicated
by a number of factors making it difficult to estimate production technologies
using a theoretical framework built for standard applications. However,
understanding the nature of production and the way in which decisions are made by
performing arts firms is particularly important given that many performing arts
organisations are funded by government. Public funding of performing arts
organisations is justified where socially desirable objectives are fulfilled.
The public good component of output makes an important dimension of firms’
production decisions unobservable while the principal-agent problem reduces the
incentive for firms to behave as cost minimisers. Both may result in an
observed production structure which is uneconomic. In this paper we revisit these
issues using a new and extensive dataset for German public theatre. We aim to
explore the extent to which the standard laws of production that apply in other
sectors of the economy hold for performing arts institutions.