Working Paper: NBER ID: w11890
Authors: James E. Rauch; Vitor Trindade
Abstract: Some cultural goods, like clothes and films, are consumed socially and are thus characterized by the same consumption network externalities as languages. At the same time, producers of new cultural goods in any one country draw on the stock of ideas generated by previous cultural production in all countries. For such goods, costless trade and communication tend to lead to the dominance of one cultural style, increasing utility in the short run but reducing quality and generating cultural stagnation in the long run. Increasing trade costs while keeping communication costs low may reduce welfare by stimulating production of cultural goods that are "compatible" with the dominant style, thereby capturing consumption network externalities, but that add little to the stock of usable ideas. A reform of cultural policy suggested by our two-country analysis could be to remove import restrictions in the smaller country and replace them with subsidies to the fixed costs of production of new cultural goods in its traditional style.
Keywords: No keywords provided
JEL Codes: F12; F13; F15; Z10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| home market effect (R31) | rising market share of US cultural goods (F69) |
| transportation costs + increasing returns to scale (F12) | home market effect (R31) |
| consumption network externalities (D62) | dominance of US cultural goods (F69) |
| cultural policy reforms (removal of import restrictions + subsidies for traditional cultural goods) (Z18) | enhanced cultural diversity and welfare (I39) |
| increased trade costs (F19) | production of culturally compatible goods (L15) |
| protectionist measures (F13) | preservation of cultural diversity (Z10) |
| preservation of cultural diversity (Z10) | dynamic welfare gains (D69) |
| cultural imitation (Z10) | genuine diversity (J79) |