Art, Museums and Contests: Private vs. Public Provision

Abstract

This paper examines revenue-raising competition among art museums when the government gives matching grants to one of them. Matching grants are complementary to revenues raised by the museums. Revenue-raising and revenue-spending activities of the museums are assumed to generate positive externalities to society. This paper derives Nash equilibrium revenues raised by the museums. The outcome is then compared with the socially optimal level of the revenues. Depending upon the type of social welfare function and the extent of externalities, the revenues raised by the museums can be greater than, equal to, or smaller than the social optimum. This paper also discusses the role of the matching mechanism of the government with which the Nash equilibrium can be equated to the social optimum.