An opportunity cost is the value lost (or forgone) as a result of making a decision between mutually exclusive choices. Thus, before assessing the economic benefits of live music making in Australia, it is useful to consider what we might have gained by using the allocated resources to their ‘next best’ ends. In order to resolve the opportunity cost conundrum, this study supposes that there is no live music making in Australia, and that the assets presently devoted to it are put to alternate productive ends.

In other words, an assumption is made with respect to the opportunity cost of these investments: if individual purchases were withheld because no value was placed on live music by the community, then the value of that contribution could be invested in long term capital growth—the supposed next best alternative use.

Therefore the value of the live music to its stakeholders is at least equal to the interest revenue forgone on the investment.

Live music opportunity cost = I x r
I = investment
r = rate of return on investment

The rate of return is determined from the 10 year bond rate of 3.49 per cent, as at 1 October, 2014 (RBA, 2014). An estimate of 2.8 per cent is further identified as the long-run inflation rate, based on the final year projection of the percentage change in consumer price index (ABS, 2014b).

r = iπ
r = real discount rate (or cost of investment)
i = nominal long-run interest rate (3.49 per cent)
π = long-run inflation forecast (2.3 per cent)

The long-run cost of investment thus applied is 1.12 per cent. To that end, we estimate that the gross cost of the opportunities diverted to live music making in Australia in 2014 is approximately 55.8 million dollars.