Wednesday, June 10, 2009

Public broadcasting

After a exam marking induced month long blogging break, it's well and truly time for a post.

The recent controversy over The Chaser's "Make a Realistic Wish Foundation" skit on the ABC raises the issue of whether there is any economic rationale for public broadcasting. Public broadcasting could theoretically be justified on two grounds.

A. Missing markets. This is where society is willing to pay for certain programming, but markets fail to provide it, thereby undermining program diversity. Particular programs that attract a relatively small number of viewers with relatively high willingnesses to pay/intense preferences may not generate the number of "eyeballs" required by stations that wish to maximise audience size and associated advertising revenue. Of course, there are weaknesses associated with this argument. It assumes a low elasticity of substitution between free to air television and other distribution channels that generate tremendous information and entertainment diversity. Markets may also be unwilling to provide programs in cases where existing public broadcasts crowd out potential private broadcasts. Furthermore, if the marginal cost of public broadcasting exceed the marginal benefits to viewers, then there is no economic justification for such provision.

B. Externalities and merit goods. Programs that feature explicit violence may be a source of concern either because it may induce violence in viewers (thereby affecting individuals not involved in viewing or broadcasting the program), or simply because policy makers believe that preferences for violence programs should have no weight in the social welfare function. There may also be children's programing, or current affairs programing that have important spillover effects but are ignored by profit maximising commercial broadcasters. The extent to which these effects are in fact internalised by viewers themselves is a matter of debate. Regardless, these concerns can be addressed through regulation, rather than public ownership.

Are there any other economic grounds for public broadcasting?

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