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Ilde Rizzo and Ruth Towse (eds.): 2002, The Economics of Heritage. A Study in
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Economic Perspectives
on Cultural Heritage
Edited by

Michael Hutter
Witten-Herdecke Universiry
Witten
Germany

and

Ilde Rizzo
Professor of Public Finance and Vice-Chancellor
University of Catania
Italy

r1ACl11LLAN PRESS lTD

.Act91
Contents
List of Figures vii
List of Tables V11l

Preface ix
Notes on the Contributors X

Part I Introduction
Economic Perspectives on Cultural Heritage:
An Introduction 3
Michael Hutter

Part II The Construction of Heritage: Theoretical Dimensions

2 Seven Questions in the Economics of
Cultural Heritage 13
David Throsby

3 The Evaluation of Cultural Heritage:

Some Critical Issues 31
Bruno S. Frey

4 Optimizing the Use of Cultural Heritage 50

Christian Koboldt

5 The Value of Cultural Heritage 74

Arjo Klamer

Part III Heritage Regulation: Regimes, Cases and Effects

6 The Political Economy of Rehabilitation:
The Case of the Benedettini Monastery 91
Giacomo Pignataro and !ide Rizzo

7 Cultural Heritage and Preservation Policies:

Notes on the History of the Italian Case 107
Guido Guerzoni

v
VJ Contents

8 The Development of British Policy on Built Heritage

Preservation 133
Stephen Creigh- Tyte

9 Features and Recent Developments of

Cultural Heritage Policy in Japan 155
Yoshimasa Kurahayashi

10 Tax Policies and Cultural Heritage 170

Dirk Netzer

Part IV Heritage Policy: Experiments and Proposals

ll Privatization Policies in Venice 185
Gianfranco Mossel!o

12 Conserving Historic Monuments in France:

A Critique of Official Policies 196
Franroise Benhamou

13 Towards a European Market for

Arts and Culture Goods: Some Proposals 211
Francesco Forte

14 Towards a Workable Heritage Policy 225

Alan Peacock

List t~l Conference Participants 236

Index 237
Preface
The chapters in this book were, with one exception, first presented at a
conference held in Catania, Sicily, from 16 to 19 November 1995. The
conference was made possible by the University of Catania, and took
place under the auspices of the Association for Cultural Economics
International.
We would like to thank particularly Sir Alan Peacock who took a
full share of the editorial workload. Most of the technical preparation
was done by Andreas Brill at the Institute for Economy and Culture
at Witten Herdecke University. Language-editing and indexing were
done by Margaret Christie, Edinburgh.
We acknowledge the Italian Research Council for its financial sup-
port (contribution no. 92.02352.CT15 and 95.00628.CT15). We would
also like to thank the Fritz Thyssen Foundation for the financial
support of the conference as well as the publication of this volume.
MICHAEL HUTTER
ILDE Rrzzo

IX
1 Economic Perspectives on
Cultural Heritage: An
Introduction
Michael Hutter

The conference at which the chapters in this book were first presented
was the first to deal with the specific subject of cultural heritage in
terms of economic science. There had been, to be sure, several isolated
contributions by economists. 1 But as of today, there is no consistent
body of literature to set the context. Such is to be expected when a
new subject begins to attract professional attention. Given this start-
ing point, the conference had two aims: to gather empirical informa-
tion about existing policies for the allocation and maintenance of
cultural heritage, and to tentatively apply techniques of economic
analysis to the phenomena observed.
When a field of research is new, emphasis must be on direct discus-
sion rather than on the presentation of results. In these discussions
some focal themes came up time and again. I will structure the
introduction to this volume through three such focal themes:
(i) the 'proper' content and extent of cultural heritage;
(ii) implications of various regulation regimes; and
(iii) combinations of public and private use.
In discussing them, a common thread can be found woven through all
the contributions.

I. CONTENT AND EXTENT- THE DETERMINATION OF

CULTURAL HERITAGE

'Heritage', writes the historian Raphael Samuel, 'is a nomadic term,

which travels easily.... It sets up residence in streets broad and nar-
row, royal palaces and railway sidings .... It stages its spectacles in a
promiscuous variety of venues, turning maltings into concert-halls,
warehouses into studio flats .... Medieval castles automatically qualify

3
4 Economic Perspectives on Cultural Heritage

for its protective mantle, as do Roman forts and Martello towers .. .'
(Samuel, 1994, p. 205).
Not surprisingly, there is a definitional question at the beginning.
Initially, most authors limit the scope of observation to tangible
things: to historical sites, buildings, sculptures and paintings. Such
artefacts are certainly tangible - and yet they have qualities which are
intangible 2
These intangible qualities must be decisive. After all, only a tiny
fraction of all the sites, buildings and paintings made in the history of
our cultures are consciously preserved; the rest have been abandoned
or destroyed. Such qualities were recognized as early as 1602. Guer-
zoni reports that in that year, 'by explicit order of the Grand Duke of
Tuscany, the export of the works created by 18 "deceased painters"
from his territory was prohibited' (p. 113).
Economic observation, therefore, cannot ignore the 'intangible'
context of such valuations and constructed continuities around each
of the tangible objects considered part of a particular cultural herit-
age. Pignataro and Rizzo illustrate this phenomenon through detail-
ing the changing valuations of Catania's Benedettini monastery.
Throsby, who deals with the issue of definition extensively, introduces
the notion of 'cultural capital', 'which embodies the community's
valuation of the asset in terms of its social, historical, or cultural
dimension' (p. 15). Kobold! calls cultural heritage objects 'an expres-
sion or representation of the cultural identity of a society in a parti-
cular period' (p. 68, note 6).
The criteria for this selection process are outside the scope of the
economist. They include, for example, the quality of an artefact in the
execution of a particular style, or the influence of an artistic object on
subsequent work (Knbler, 1962). In any case, economic analysis does
not help in determining the nature of cultural heritage. However, it is
able to explain the extent of preservation within a given class of
artefacts, and it is able to make predictions about the effects of
specific regulatory instruments.
A clear example is the low level of protection and maintenance of
cultural objects in Italy. The stock of cultural heritage objects is mnch
greater in Italy than in any other country. In consequence, the evalua-
tion of the last and therefore marginal item is lower than in countries
with few buildings and artefacts representing their cultural history and
identity. In addition, a large proportion of the users are international
tourists who contribute only through ticket prices and local sales tax.
Those trades which profit from the visitors consider the existence of
 Michael Hutter 5

the objects as a positive externality of production 3 Thus, the income

earned through the use of cultural heritage does not reflect the
amount that national and international beneficiaries would be willing
to pay.
The Italian example also points to a standard difficulty in applying
economic tools: cultural heritage objects exhibit public good charac-
teristics. Since the objects are looked at rather than being physically
handled, there is generally no rivalry in consumption: In the case of
towns and buildings, particularly religious buildings, there is also free
access. For artefacts, access can be regulated, but still there remains an
intangible element of 'public interdependence': the more people know
about an object, the more its fame and reputation grows. As with all
communication goods, cultural heritage objects exhibit strong net-
work externalities. But it is unclear what would be an appropriate
size for the network. Some objects become part of the heritage
construct of several nations. Sometimes it is enough to publicize
artefacts to make them part of a different culture. The appreciation
of Rembrandt's paintings is a case where those coming from other
cultures initiated their inclusion in the Dutch heritage tradition. There
are many cases, and Forte cites some of them, where artefacts were
stolen or imported and became part of the heritage of their new
resident country. The case is complex: national heritage, as Klamer
shows, is an evolving constructed tradition.
In addition to the theoretical argument, there is a growing base of
empirical support for the public good claim. In particular, 'Contingent
Valuation' surveys demonstrate the individual willingness to pay for
specific environmental or cultural goods. Although Frey comes to the
conclusion that referenda are an even better way to find out citizens'
demand for cultural goods, this source of factual support should not
be overlooked. As Bille Hansen emphasized in her comment on Frey's
paper, the advantage of Contingent Valuation is that it measures
use values, non-use values and the value of an option demand.
Creigh-Tyte favours a mixture of Contingent Valuation and hedonic
pricing.
Contingent Valuation is a method designed for the evaluation of
environmental goods. In the light of the observations made above, the
structural similarity between goods belonging to the natural and those
belonging to the cultural environment is striking. Several authors,
particularly Benhamou and Kurabayashi, elaborate this point.
Kurabayashi, Peacock and Throsby, moreover, introduce the notion
of sustainability, which, again, is imported from environmental
6 Economic Perspectives on Cultural Heritage

economics. It seems that the analytical implications of the similarity

are not yet fully exploited.
Given the public good property of cultural heritage, some typical
constellations of use emerge. One is the possibility or, in the case of
international tourists, the inevitability of free-riding on the services
provided by a private owner, a municipality or another public
authority. A second constellation is the competition between the
property value of, say, a mediaeval castle to a private owner and the
aggregate value of the castle to non-users, people, for instance, who
simply value the fact of its existence in a historically 'pure' form.
Benhamou and Creigh-Tyte both deal with this constellation.
There is no consensus on the appropriate approach. To name the
extremes, Klamer pleads for an alternative theory that focuses on the
process of value formation, while Kobold! sees no reason to abandon
traditional optintization analysis.

2. IMPLICATIONS OF VARIOUS REGULATION REGIMES

Despite the controversy, it is quite evident that we cannot and, in fact,

do not rely entirely on traditional market transactions to generate the
volume and quality of cultural heritage objects desired. Therefore,
other forms, particularly political forms, of co-ordination become
worthwhile objects of study. The general term for such intervention
is 'regulation', but there is a wide variety of institutional arrange-
ments hidden behind that term. Practically all the papers in this
collection deal in some way with aspects of regulation. Throsby
suggests a framework for categorizing regulation that I will nse in
my discussion.
Hard regulation 'comprises enforceable directives requiring certain
behaviour' (p. 20). The state or one of its organs generates legal
restrictions on use or exchange, and it enforces compliance through
sanctions.
Such interventions usually infringe on someone's private property
rights. That is all the more the case when the notion of what consti-
tutes cultural heritage changes. The private owner finds his rights
restricted, he incurs a private Joss and he becomes, in some sense, a
public guardian.
There are many ways by which private owners can be compeasated
for the loss: there may be bounty payments for antique objects found
underwater, or maintenance subsidies for buildings with restricted use
 Michael Hutter 7

and appearance, or tax exemptions in exchange for obligations in

respect of private maintenance.
Standard economic results lead us to expect that hard regulation is
a rather crude tool, twisting incentives into unforeseen directions. On
one hand, it causes destruction and hiding of 'listed' objects and sites.
On the other hand, it leads to windfall gains and rents. Benhamou, for
instance, demonstrates the side effects of the French government's
'listing practice' quite clearly.
On another level, there is a sizeable body of work available on the
effects caused by the intrinsic motives of the administering agencies.
Standard forms of reaping benefits are minimization of work load,
private gains and privileges, and the possibility of agency capture by
interested commercial or political organizations. As Creigh-Tyte
shows, the actual bundle of motives and dependencies active in a state
agency dealing with cultural heritage is much more complex.
Soft regulation is implemented by agreement and it is non-enforce-
able (p. 20). Throsby cites mainly international agreements. But the
category also includes direct agreements between state authorities and
private owners. These two types of soft regulation operate at two
extremes of a spectrum. In the first case, the agreements are very
general, but the step of transmission from the agreement-producing
body to the constituency is rarely mastered. Agreements made
between governments are a variation of such diplomatic contracts.
There is still no common regulatory agent, but there can be national
enforcement. Such agreements usually bundle several items on the
political agenda, and cultural heritage issues rarely rank highly in
national political games.
In the second case, the agreements are very specific and thus parti-
cularly suited to a local situation. But transaction costs are high,
which makes the effort worthwhile only in the case of large, unique
private owners. 5 It is also often difficult to identify tho negotiating
counterpart on the side of the state. Sometimes the authority can be
identified, but is given very limited discretion in making decisions
about offers. In other cases, the state official is charged with the full
liability for any activity. Either way, agreements which fit unusual
situations are rarely reached.
There are a number of measures that the state can take that go
beyond hard or soft regulation. The most widely used is probably the
offer of tax advantages. Netzer shows the variety of forms which
this instrument takes around the world, and he demonstrates the
difficulties and contradictions involved.
8 Economic Perspectives on Cultural Heritage

Overall, the prospects for successful regulation of the available

stock of cultural heritage objects are not too good. But while ineffect-
ive rules are stubbornly maintained or nonchalantly broken, unique
objects disappear daily. The cultural variety enjoyed by future gen-
erations depends on our ability to maintain existing 'expressions of
cultural identity', and to generate new ones 6

3. COMBINATIONS OF PUBLIC AND PRIVATE USE

Cultural heritage regulation usually aims at removing objects from the

commercial sphere, reserving them for the purposes of contemplation,
reflection and enjoyment. That, however, is only one end of the
possible spectrum of uses. The opposite end would be the unconscious
private use of heritage objects, such as the use of a Greek temple as a
stable, or the use of a Veronese as a bedroom decoration. In between,
there are many possible combinations of private and public uses,
particularly in the case of buildings and sites with differentiated
internal structures. Such assets are capital goods. They provide a
continuous, multi-product flow of benefits and earnings, and they
demand constant reinvestment in the shape of material maintenance
and 'communicative maintenance'. 7
A rich example of changes in use is the Benedettini Monastery,
discussed by Pignataro and Rizzo. The first uses after the abandon-
ment of the monastery's original use were at the low end of the· scale
of social valuation: garbage disposal, quarters for horses and military
personnel, rooms for schools. Then came a bold attempt to establish a
mixed use of the monastery, both as a cnltural monument and as the
location of the humanities faculty of the local university. The state
subsidy for such 'rehabilitation' was granted, as it were, as a matching
fund for the efforts of the university to reconstruct and convert the set
of buildings. During renovation, remnants of Roman habitation were
found. The Sovraintendenza, being the regional authority, was obliged
to stop the planned building of lecture halls in order to protect the
'older heritage'. In such cases, a resolution of the conflict over use
would be possible if public authorities were allowed to be more
flexible in handling their negotiation rights.
Not only can different kinds of use co-exist, in many cases they even
generate synergetic effects. Private uses may bring people in contact
with a site; public efforts for cultivation and maintenance increase the
value of private services. Private organizations have advantages in
 Michael Hutter 9

effectiveness and responsiveness to change; public organizations are

Jess prone to pressure, execute the political will of a community, and
are able to set standards. To find adequate organizational and legal
solutions, however, demands creativity and the willingness to take
risks. The City of Venice is about to start several such projects.
Mossetto not only reports on them, he is also the driving force behind
them.
These are only a few examples of an instrument that has as yet
hardly been explored. Economic analysis, particularly in its institu-
tional variations, can contribute to making proposals for mixed use
more predictable and thus more feasible.

4. ANALYSIS AND ADVICE

A last theme of the conference will be mentioned briefly: the dual role
of the economist as an independent analyst and as an advisor and
consultant for concrete interventions into the current allocation and
distribution of cultural heritage goods.
There are on-going, everyday decisions being made by archaeolo-
gists, restorers, architects, investors and civil servants: which layer of
historic construction is to be protected? Which action should come
first? How can management and pricing increase a project's effective-
ness? These decision-makers are the ones who demand arguments to
structure their choices, and economists can provide consistent patterns
of argument. The first step, however, consists in making decision-
makers realize that choices are inevitable, and that there are rarely
pure and simple choices. In some cases, economists get to know a
particular segment of the heritage field well enough to make proposals
of their own. Forte and Peacock make such well-reasoned proposals.
Mossetto, moreover, is in the rare position of being able to prepare
proposals from an economist's perspective and then tum them into
action as a public administrator.
In addition to that kind of intentional influence, economists often
interfere unintentionally. They do so as soon as they choose their
categories of observation. By including one type of 'collective mem-
ory' and excluding another, by using models which do or do not take
future generations into account, they shape the content of future
cultural heritage. Cultural economists ought to be aware of that
influence as they begin to make a contribution of their own to the
interpretation and valuation of cultural heritage.
10 Economic Perspectives on Cultural Heritage

NOTES

l. The first article on cultural heritage dealing with substantial economic

issues is Peacock (1978). See also Agnus (1989) and Greffe (1990) as
examples of a French discussion on the subject, and the contributions of
Mossetto and GiardinaJRizzo in Peacock and Rizzo (1994). See also de
Monchaux and Schuster (1996), which. presents the contributions of a
conference that took place a few weeks after the Catania conference.
2. The use of the term 'intangible' is akin to its more conventional use in
'intangible assets'. In both cases value is determined in a judgemental
process involving several participants. See also section 2 below.
3. Exceptions are small towns like San Gimignano where the connection
between city maintenance and turnover of shops and hotels is obvious.
4. In some cases, such as the Piazza S. Marco or the Louvre in August, there
may be problems with congestion, but these are exceptions.
5. An example is the negotiations with the heirs to the Picasso estate.
6. The emphasis on already existing objects is implicit. A more general
analysis would have to consider the continuous generation of new
cultural expressions as well, as Santagata emphasized during the dis-
cussion.
7. Objects of cultural heritage stay in collective memory through a process of
constant re-interpretation: new evidence is found, new explanations are
offered, new references to contemporary events are made. All this consti-
tutes 'communicative maintenance'.

REFERENCES

J. M. Agnus, L 'Investissement pour le patrimoine, Paris: MinistC:re de la

Culture, DEP, 1989.
E. Giardina and I. ltizzo, 'Regulation in the Cultural Sector', in A. Peacock
and I. Rizzo (eds), Cultural Economics and Cultural Policies, Dordrecht:
Kluwer, 1994, pp. 125-42.
X. Greffe, La Valeur economique du patrimoine, Paris: Anthropos, 1990.
G. Kubler: The Shape ofTime: Remarks on the History of Things, New Haven:
Yale University Press, 1962.
J. de Monchaux and M. Schuster (eds), Preservation of the National Heritage:
Policies, Proposals and Actions, Boston: University of New England Press,
1996.
G. Mossetto, 'The Economic Dilemma of Heritage Protection', in A. Peacock
and I. Rizzo (eds), Cultural Economics and Cultural Policies, Dordrecht:
Kluwer, 1994, pp. 81-98.
A. Peacock, 'Preserving the Past: An International Dilemma', Journal of
Cultural Economics, 2, 2 (!978), pp. l-12.
A. Peacock and I. Rizzo (eds), Cultural Economics and Cultural Policies,
Dordrecht: Kluwer, 1994.
R. Samuel, Theatres of Memory. Vol. 1: Past and Present in Contemporary
Culture, London: Verso, 1994.

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