Brushstrokes and Balance Sheets

Exploring Public Goods Funding Through Street Art

Author

Jack Kurtz
May 24, 2023

About a month ago, I was walking the streets in Dresden, Germany, and I noticed that, among the beautiful cathedral and architecture, there was a high quantity of street performers (aka buskers) in the Neumarkt, the Dresden Town Square. The weather was perfect, the sun was beginning to set, and hundreds of city-goers were exploring the different shops and the sites. But one thing caught my eye; almost no one was going up to or tipping the street musicians that dotted the square.

Image 1: Frauenkirche and Neumarkt in Dresden, Germany (Image Credit: Jack Kurtz)

Despite everyone listening to their music (i.e., consuming their services), people treated the music played by these street musicians like the cobblestone streets or water in the city, a good/service consumed by but not paid for by everyone in the Neumarkt. This got me thinking about my past experiences with street performers and their broader economic role in communities worldwide. So for my first blog, I wanted to see to what extent the services provided by street performers (e.g., music and art) are public goods and what this means for the provision of public goods more broadly.

However, let’s first start with a brief primer on economic goods. Economic goods can be broadly classified into one of four categories: private goods, public goods, common resources, or club goods. Each category is defined by its relative characteristics, primarily whether the good is excludable (or not) and rivalrous (or not).

A good is excludable if it’s possible to prevent people who don’t pay for the good from consuming it. Think about it this way, people who don’t buy a ticket to one of the Taylor Swift Eras tour concerts can’t go to the concert, thus making this good excludable. However, you can’t prevent people from driving on public highways even if they didn’t directly pay for this good or service, thus making it non-excludable. On the other hand, a good or service is rivalrous if one person’s consumption reduces availability for others. Think food is rivalrous, but email is non-rivalrous. With these two characteristics in mind, let’s break down the four economic goods.

Private goods are both excludable and rival, meaning consumers must compensate the good/service provider before consumption. Moreover, consuming a private good must prevent other individuals from consuming the same good. Public goods are both non-excludable and non-rival, meaning no one can be prevented from consuming these goods, and other individuals’ consumption does not constrain the supply of public goods. Because these goods are often under-compensated by individuals, the government often supplies these services using taxpayer funds.

Image 2: Economic Goods Breakdown (Image Credit: Jack Kurtz)

Common resources, while less relevant for our purposes, are products that are non-excludable but rival. This means the price to use them is free, but one person’s consumption prevents others from consuming the same good. Examples of common resources primarily consist of natural resources, such as freshwater, silver, and fish. Club goods are goods/services that are excludable but non-rival, meaning consumers must pay to use the given good or service, but their consumption does not prevent others from consuming the same good. Think of subscription services like Spotify, Netflix, or Disney+.

Now that we have defined the different categories of economic goods, let's explore which economic goods category street performers’ music and art fit into. Generally, an individual’s enjoyment of street art and music does not prevent others from doing the same. This is particularly true in open public spaces, like the Dresden Neumarkt, where potentially hundreds of people can simultaneously consume the music being performed by a busker or appreciate a piece of street art. Because they can be enjoyed freely by anyone passing by (i.e., non-excludable), and are non-rivalrous, as one person’s enjoyment of the performance doesn’t diminish the ability of others to enjoy it. Given these characteristics, street performances, including music and art, fit the definition of a public good.

At this point, you may be asking yourself, “Jack, why should we care about the economic classification of street art?” Classifying street art as a public good raises a challenge unique to public goods. Due to their non-excludable and non-rivalrous nature, public goods often suffer from what economists call the “free-rider problem,” meaning people don’t contribute towards a public good’s funding despite consuming it. The case of the street performers in Dresden provides a perfect example of this issue; people enjoy the music without compensating the performers, essentially free-riding on the efforts and talents of the performers.

Free-riding is particularly challenging for public goods because individuals need a direct incentive to pay for their consumption, resulting in the underfunding and undersupply of public goods, especially if they are reliant on voluntary contributions from consumers. This is often why service providers, such as musicians, sell their music via music streaming or concerts (i.e., as private or club goods). As a result, governments and other non-market forces (see Image 3) often step in to provide and finance public goods, using taxes or industry-funded programs, such as FDIC insurance, to ensure adequate funding.

Image 3: Market and Non-Market Actors Visual (Image Credit: MIT Sloan Review, 2010)

The case of street performers also offers potential solutions to the free-rider dilemma. While at first glance, there may appear to be a lack of direct incentives for individuals to compensate street artists and musicians for their services directly, commercial real estate (CRE) developers and individual retailers have, over the last decade, begun to embrace street art and music as a means of aligning their brands to the local community to deepen customer loyalty and community engagement. More importantly, retailers and CRE developers aim to use integrated art and music to draw and keep shoppers at their venues, says James Cook, JLL’s America Director of Research for retail, especially in the current age of online shopping and food delivery (JLL, 2020). By keeping customers at the given shopping center or store, real estate operators and retailers, such as JLL, one of the largest global full-service real estate and investment management firms, hope to increase customer profitability by increasing per-customer spending.

However, many people still compensate street performers, whether it’s through tips, following their social media, or buying their art or music, possibly due to a strong sense of moral obligation or intrinsic pleasure in supporting the artists, suggesting that social norms and values can play a role in encouraging voluntary contributions to public goods. Because of this, businesses can supply their customers with art and live music, encouraging them to stay longer to enjoy the atmosphere and increase per-customer profitability.

Sounds like a win-win, right? The public can enjoy more street art, music, and related art forms supplied by retailers, mall operators, and other corporations. At the same time, companies alike can increase community engagement, customer loyalty, and repeat sales, ultimately driving higher per-customer profitability. By introducing private corporations as a source of funding for public goods, such as street art and music, funding for such public goods is more sustainable due to decreased reliance on irregular public funding.

However, can the same be true for public funding of goods provisioned by private corporations? In the next Randonomics, we’ll explore whether municipalities can benefit from public funding of private corporations, a controversial practice commonly employed by defense contractors, manufacturers, and sports teams. Is it just another example of corporate welfare, or can public funding of private firms have outsized public benefits? Thanks so much for reading, and I’ll see you in the next post!

Fun, Compelling, Random – Randonomics

Jack Kurtz - [email protected]

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