Thursday, June 18, 2009

Who pays for Chicago's fireworks?

Last Saturday, my wife and I went on a fireworks boat tour while entertaining friends who visited us in Chicago. We paid $23 each for two hours on a mini cruise boat. Our fee bought a river tour of the skyscrapers, a view of the skyline from Lake Michigan, and a spectacular view of the twice-a-week Navy Pier fireworks show. If you ever visit Chicago, the fireworks tour is definitely worth the price of admission.

If you don't have sea legs, you can view the fireworks display from plenty of places downtown: by land, by bridge or even by skyscraper. No doubt, other people watched the show. Furthermore, almost no one who viewed the show paid for the show directly. Even we did not pay for the fireworks directly: the tour would have been worth the price even without a fireworks display.

On our trip back to the dock, while everyone else was hearkening back to the brilliant fireworks display, I couldn't help but wonder: who paid for the fireworks? Silly ole economist me, I had to do some math to figure it out.

Our boat had a capacity of 130 passengers and it was not quite full. Out on the lake, I noticed only four other boats like ours on a similar tour de fireworks. At 100 people per boat, that's 500 people who paid for the show. If $10 of our $23 fare went to the fireworks budget, that's only $5000 with which to pay for the spectacular fireworks display.

That's a good load of cash, but the fireworks display we witnessed was a good one. Even though fireworks displays start at $3000, good ones can cost more than $20,000. In fact, the July 3rd fireworks show in Butte, MT perpetually puts Butte Celebrations in debt exceeding $10,000. Our show was better than the yearly July 3rd celebration in Butte. So, if better fireworks means it is more expensive, our show cost more than $10,000.

That's more than the revenue captured, so it seems that the show is a money-loser for the organizers. From an economic perspective, this shouldn't be surprising. After all, fireworks displays are what economists call a public good. Public goods have two features that distinguish them from ordinary goods like pizza or computers.

  1. My use of the good does not diminish or preclude your use of the good. With the fireworks, my viewing of the show doesn't dim the lights or dampen the booms for you. A good with this feature is called non-rival.

  2. People can enjoy the good even without paying. In our example, someone on the Michigan-Wacker bridge didn't pay a cent, but gets a great show. A good with this feature is called non-excludable.

Because public goods are non-excludable, it is very difficult to make a living producing them. Even though everyone wants the good produced, no one wants to pay because they can enjoy the good without paying. Therefore, no one wants to produce them. Standard Econ101 tells us that the government can help us over this non-excludability hurdle by taxing the beneficiaries and providing the good.

Now, that's not to say that government is the only solution. In fact, you should be skeptical whenever an economist tells you that the government can (or will) fix a problem. Yes we can provide public goods with public money, but government solutions are laden with legislation and pork. Is it possible for individuals and private groups to solve the problem? That's the question I asked myself as our boat raced back to the Chicago skyline.

Private solutions. For some public goods, there are some promising private alternatives for overcoming the public good problem. For example, our tour bundled a fireworks show with other amenities that made the whole package worthwhile. As a result, we paid for a substantial portion of the show. Bundling is a common way for companies to overcome the non-excludability of public goods. Television and radio programming, as well as most services on the Internet bundle public goods (broadcast programming, information, knowledge, etc.) with advertising.

As my story above shows, sometimes bundling does not make the good profitable enough. Another way for private entities to raise fireworks revenue is to form a coalition of interested parties to provide the good. For fireworks in Chicago, a coalition that makes sense is a group of downtown businesses. If some organization can solicit them to pitch in some money to finance the fireworks show, that might raise sufficient revenue.

And, local businesses have an interest in pitching in. On account of the twice-a-week shows, people visit downtown and frequent the downtown businesses. That extra business is worth paying for, leaving open a couple of revenue sources: people who want an extra special view (like us) and businesses that want to attract extra patrons. Put the two together and it just might be profitable to provide the service privately.

What does Chicago do? The theory behind public goods is nice, but how does it match with how Chicago actually finances the fireworks shows? It turns out that the Metropolitan Pier and Exposition Authority (MPEA) puts on the fireworks shows as part of its managing of Navy Pier. MPEA is a municipal corporation with the express purpose of "strengthening the local economy." To that end, the municipal corporation acts as an extension of local government; it is not expressly profit-seeking.

This is not a private solution, but there are elements of economic efficiency to it. The fireworks boat tours induce people who want the best view to pay the lion's share of the firework show. The businesses at Navy Pier capture some extra revenue drawn in from the crowds who come to watch. Other downtown businesses pay taxes, but in return, get spillover benefits from the fireworks shows. Patrons pay taxes and most get a free fireworks show in return.

In the end, the provision of Chicago's fireworks shows is a government solution to a public goods problem, but from the perspective of someone who likes private solutions, it isn't half bad. Having fireworks shows twice per week is just another perk that makes me happy I am living in Chicago. Sure we have 10.25 percent sales tax, but did you see that finale?


  1. Do people actually come to the city to see the fireworks?

    Why can't MPEA take this cash and pay for some of the city services they use? Suppose the MPEA paid the CTA a fee for the bus line that goes to the pier? Why shouldn't the MPEA pay the police a fee for the protection they afford patrons? OR what about NOT having the fireworks and using the "extra" cash to pay off the bonds on the MPEA facilies. OR suppose they cut the car rental and hotel taxes and eliminated the fireworks?

    Bread and Circuses. Welcome to Rome.

  2. Who pays for Chicago fireworks? I do. I am one of those downtown workers and/or downtown dwellers who purchase prepared food and beverages in the downtown area. I along with my millions of pals are levied a 1% sales tax added to the highest sales tax in the land solely for the MPEA (Navy Pier). It bears repeating that is an additional 1% added to the sales tax. And please also understand that "downtown" is defined by the Il Dept. of Revenue as from I55 to Surf (which is just north of Diversey), and spans all the way west to Ashland! I had no idea downtown was that big.

    So you can thank me, or us. We are the "downtown" workers and "downtown" dwellers who consume restaurant food and bevs and pay big for fireworks 2x per week. We however need to stay away from Navy Pier because the prices are ridiculous.


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