Municipal Financing of the U.S. Fine Arts Museum: A Historical Rationale

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Abstract
Municipal involvement in the finance of fine arts museums raises the question: Just which market failure serves to rationalize this public subsidy? Two contenders are prominent in the literature: decreasing costs and education externalities. The relationship of price to marginal cost provides an operational test to distinguish among the two rationales. Scattered data from the 1880s and 1890s as well as contemporary discussion indicate that, implausible as it may seem now, education externalities constituted the operational justification for the public subsidy.

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