Event Analysis - Understanding the Divide Between Cost Benefit and Economic Impact Assesssment

Abstract

Many special events are unable to earn sufficient revenue to cover their operating costs. Their financial structure is such that they would not be run without some form of Government assistance, usually a subsidy. Governments frequently justify such expenditure in terms of the economic impacts that the events bring to their host region, especially the expenditure by visitors who would not have come to the region but for the event. The method of measuring such impacts has been well documented. Despite the demonstrated impacts, many events have also received widespread criticism, and there is often a degree of cynicism surrounding the announcement of outcomes. In some cases the cynicism is a result of a misunderstanding of the commonalities and differences between economic impact analysis and cost-benefit analysis. This paper provides an explanation of the differences between the paradigms of cost-benefit analysis and economic impact studies in the context of special events. Cost-benefit analysis of public events is founded in the principles of welfare economics. It concentrates on consumer and producer surplus measures, with a particular emphasis on consumer surplus. In many cases the orientation of special events is not around local consumers, but on attracting from outside of the region. In this case, much of the benefit comes from the impact on production levels - and so producer surplus is the more appropriate focus. Producer surplus represents the return to producers for units of production up to and including the last unit above and beyond the cost of resources involved in the production. It generally assumes that resources used are used at their opportunity cost. In contrast economic impact analysis involves estimating the full value associated with the use of either labour or capital. It says that the value of wages created by an event is a benefit to the region as a result of the event. Therefore this paper demonstrates that there is a link between the welfare economics paradigm of cost-benefit analysis and the growth based paradigm of development economics. That link is based on an underlying presumption that resources are un- or under-utilised and therefore income generation is a real benefit.