Failure to meet the reserve price: the impact on returns to art

This article presents an empirical study of paintings that have failed to meet their reserve price at auction. In the art trade, it is often claimed that when an advertised item goes unsold at auction, it will sell for less in the future. We have constructed a new dataset specifically for the purpose of testing this proposition. To preview our results, we find that paintings which come to auction and failed return significantly less when they are eventually sold than those paintings that have not been advertised at auction between sales. These lower returns may occur because of common value effects, idiosyncratic downward trends in tastes, or changes in the seller’s reserve price.

Charging for Admission to Museums and Galleries: A Framework for Analysing the Impact on Access

The Labour Government recently stated that access is a cornerstone of all its cultural policies, including those for museums and galleries. This paper therefore outlines a robust paradigm by means of which the impact of admission charges on access can be analysed. In applying that paradigm to museums, it demonstrates a number of analytical and theoretical red herrings which serve only to confuse a study of charges, including the zero marginal cost argument for free admission. Unless it uses this framework, the Government cannot be sure that it has secured access for the many instead of the few.     

Revisiting tax subsidies for cultural institutions

This paper was presented at the symposium dedicated to the 25th anniversary of the publication of Patrons Despite Themselves: Taxpayers and Arts Policy (Feld et al. 1983), held by the Association for Cultural Economics International, Boston, June 2008. Patrons Despite Themselves raised and tried to answer a number of important questions of policy concerning indirect government support for the arts. These questions have continued salience for what we see in our museums and hear in our concert halls. The primary source of federal indirect aid in the U.S. continues to derive from the deduction in the federal income tax for contributions to not-for-profit cultural institutions. On the other hand, there has been a series of recent challenges to the tax-exempt status of charitable institutions.

Superstar Museums: An Economic Analysis

Superstar museums are characterized by (1) great prominence among tourists and world fame among the general population; (2) a large number of visitors; (3) a collection of generally known painters and individual paintings; (4) an exceptional architecture; and (5) a large role of commercialization, including a substantial impact on the local economy. The superstar phenomenon is caused by factors both on the demand and the supply side of the market. Superstar museums are forced to offer total experience to the visitors; they have to relate to events in history, technology, politics, films and TV, and they have to provide for everything from education, food, gifts, shopping to entertainment. The development of superstar status strongly affects museum policy. The strategic orientation emphasizes visitors' demands; the organization has to be decentralized into processes each devoted to particular segments of visitors, to special exhibitions or support activities. There are also major consequences for human resource management, in particular, relating to flexibility and staff composition of paid employees and volunteers.     

The progress of “affirmative action”: Yale declares itself

Reports and Documents

The progress of affirmative action: Yale declares itself     

Estimates, Bias and “No Sales” in Latin-American Art Auctions, 1977–1996

Estimate bias and no-sales are investigated in the context of Latin American Art auctions conducted in New York between 1977 and 1996. We find that, using a new method for calculating bias, both Sotheby's and Christie's overestimated art (oil-on-canvas pieces) by 2.7 percent. The inclusion of no-sales raises that proportion to a full one-third of the art traded. Utilizing a binomial probit analysis, moreover, we find that the estimate window is negatively and significantly related to the likelihood of a no sale at auction.     

The law of one price,noise and “irrational exuberance”: the auction market for Picasso prints

We use prices realized for Picasso prints at auctions worldwide, as well as the 100 prints that comprise his Vollard Suite, to test the law of one price: the proposition that identical art objects sold contemporaneously should command the same price regardless of the auction house or geographic region where the sale takes place. Picasso is the most prolific printmaker of the twentieth century and, from 1977 to 2004, his prints appreciated in price significantly faster than the prints of modern masters as a whole. We find that Picasso prints sold in the United States command higher prices than in Europe. However, prices realized at Sotheby’s in New York are no longer higher than at Christie’s in New York, nor at Kornfeld than at other auction houses. We find evidence of “irrational exuberance” in the transitory nature of the extraordinary prices realized for the Picasso prints included in the 1997 sale of the collection of Victor and Sally Ganz at Christie’s in New York. More generally, we find substantial noise in auction outcomes, a result well known to savvy auction goers.

Creating the Future: ‘New Directions’ in American Research Universities

This paper assesses the causes and consequences of recent American efforts to configure the research university as an engine of economic and social change. Drawing upon interviews and strategic plans, the paper describes recent policies to encourage interdisciplinary creativity, in a context of increasing income from private gifts and endowments.This revised version was published online in May 2005 with corrections to the text on page 26.     

Neither Public Nor Private: The Hybridization of Museums

This paper takes a preliminary look at the hybridization of museums – the creation of a variety of mixed forms of governance incorporating both public and private governing authorities. Using data from three national surveys of American museums, the analysis documents the mix of types of governing authority and demonstrates how this mix varies across location, over time, and by museum type. The paper then estimates the extent of hybridization using several different indicators and speculates about its implications. The United States offers a particularly informative case because the general view is that American museums are (1) either public or private and (2) predominately private. While the second part of this view may still be a useful characterization of American museums, the first is no longer a particularly helpful way of understanding American museums, or, by extension, other cultural institutions, American or not. It is increasingly necessary to view cultural institutions through the lens of hybridization rather than privatization in order to improve our ability to document and predict their institutional behavior.     

Ownership,organization structure and public service provision: the case of museums

This article provides an empirical investigation of the effects of the ownership and organizational structure on the performance of cultural institutions. More specifically, we consider how museums are effective in their function of disseminating culture to audiences and contributing to the local development. By exploiting a unique data set based on the 2011 census of Italian museums, we develop performance indices of accessibility, visitors’ experience, web visibility and promotion of the local cultural context. Using count data models, we regress such measures on the type of organization. We distinguish between governmental museums, public museums whose administration is either outsourced or has financial autonomy and private museums. We control for the most salient characteristics of a museum, competition pressure and some proxies of potential audience. Our evidence shows that private museums, public museums with financial autonomy and outsourced museums outperform public museums run as sub-units of culture departments. This paper contributes to the cultural economics and public policy and administration literature by adding insights into the effect of outsourcing and administrative decentralization in the public cultural sector.     

The U.S. Radium Industry: Industrial In-house Research and the Commercialization of Science

A fierce debate ensued after the announcement in 1913 in the U.S.A. that all rights and ownership of radium-bearing ores found on public land would be reserved by the government. At stake was the State monopolization of radium that pitted powerful industrialists with radium claims, mainly in the Colorado area, against the Bureau of Mines and prestigious physicians who wished to reserve radium for medical uses. This article describes the strategies of one of the biggest U.S. radium industries that dominated the radium market, created huge customer bases, and legitimized their role within the scientific community. In contrast to the European “radium situation,” radium extraction, production, and marketing in the United States was controlled by the industry; and industrial in-house research was clearly separate from that done in academic circles. The production of knowledge was ready-made in the factory and was entangled with commercial orders and advertising patterns.

The buy-out/property right share choice in film financing: Financial rationing,adverse selection and the bayesian dilemma

Reduced state support of film financing in Europe requires the creation of an efficient market of private cinema financiers. Principal-agent models with and without common consent over film risk show that the two main problems of film financing (high risk and lack of collateral for the borrower) may be solved if the financier achieves economies of scale in costs of capital and is efficient in information gathering. Conversely, the pathology of a market with inefficient financiers includes: film financial rationing, adverse selection, and refusal of financial support to otherwise profitable film projects. From the normative point of view, the creation of efficient financiers would be fostered by institutional changes that promote market thickening and risk spreading (the case of the USA) instead of simple forms of risk shifting (the case of Italy).     

How should cultural diversity be measured? An application using the French publishing industry

Despite the lack of a clear definition of the concept, “cultural diversity” has remained a core issue for more than a decade (WTO, UNESCO, etc.). The aim of this paper is to begin to fill this gap. We argue that cultural diversity is a multi-dimensional concept and that accurate metrics must rely on three criteria: variety, balance and disparity. We also stress that supplied and consumed diversity have to be distinguished. We apply this set of multiple measures of diversity to publishing data for France over the period 1990–2003. Our main result is that the situation of the publishing industry in terms of cultural diversity is highly dependent on the dimension considered. Hence, diversity increases when variety is the sole consideration, whereas taking balance or disparity into account leads to the opposite conclusion. This issue raises a series of questions about the use of diversity measures in a policy debate concerned with furthering cultural diversity.

Two games in town: a comparison of dealer and auction prices in contemporary visual arts markets

The article tests a couple of hypotheses relating to markets where demand is not taken as a given, but subject to sophisticated and encompassing price-building strategies. The study uses a data set that provides quoted dealer prices for medium-sized works of 100 leading visual artists from 1970 to 2004. These data are compared with auction price results for works by the same artists. The study reports significant discrepancies with respect to the relationship between the age of artists and prices paid for their works in the two markets, and with respect to general price developments in the two markets as measured by indices.

Do People Really Care About the Arts for Future Generations?

Many people argue that public art contains an element of bequest value: value derived by people today from the expected enjoyment of the art by future generations. In this paper, I investigate the existence of this claimed benefit. I employ an intergenerational model of the benefits from government subsidies and private charitable gifts to the arts, and fit it empirically using 1996 US General Social Survey data. The data analysis suggests that people take their life expectancies into account to some extent when giving to the arts or supporting government arts spending. Indeed, we cannot reject the hypothesis that people do not consider future generations in their current support for the arts.     

Federal support of basic research: Some economic issues

Summary There is no necessary connection between leadership in basic science and leadership in the applications of science, because scientific progress is a cooperative endeavour and not a competitive game; indeed, there may be a conflict between basic research and applied science. The notion of a position of leadership; in science raises questions of what leadership consists in and what its value is to the nation. The two main arguments for government support of science are cultural-social, and economic. The cultural-social argument stresses scientific activity as a form of social consumption of wealth and raises the question of whether other uses of the resources employed would contribute more to the greatness of the society. The economic argument stresses basic scientific research as a form of investment for the future, and raises the questions of what the rate of return on such investment is and whether and to what extent government support is called for. Relevant economic research results bearing on this problem are scarce. Economic theory suggests that competition in the market will supply less than the optimal amount of basic research; but our society substantially supplements the market through private contributions to and government support of science, and the question is whether this supplementation is deficient or excessive. Here difficult problems arise, on which more economic research is needed; one of these concerns the relative merits of government and private support of science. The rule-of-thumb procedures generally recommended for determining the volume and allocation of government support to basic scientific research generally ignore these problems, and amount to endorsing the present level of government support or recommending that it be increased. Allocation of federal support of science should take account of the possibility of stimulating the economic development of poor regions of the country by locating scientific research facilities in them.     

eBay auctions for Third Eye Blind concert tickets

The band Third Eye Blind recently completed a tour, selling tickets exclusively on eBay. Many tickets were bundled with either VIP passes or autographed posters. These data are used to measure variations in price across different markets, as well as the premiums paid for different ticket types. Auctioning the tickets allows the seller to practice Third Degree Price Discrimination and bundling, without having to determine prices in each market and for each different bundle. We find: tickets bundled with VIP passes command a substantial positive premium; tickets bundled with autographed posters command a small negative premium; different prices emerge in different geographic markets; and auction prices are positively related to the fixed price at which tickets could be purchased by way of Buy-it-Now.

How cultural organizations’ size and funding influence innovation and performance: the case of museums

Our work pursues a twin aim. Firstly, we explore the influence of organizational size on innovations in museums as well as its impact on museums’ economic, market and social performance. Secondly, we analyse how the (public–private) funding of such organizations impacts innovation and performance. The empirical work is based on information from a survey of 491 museums (British, French, Italian and Spanish). We find that museum size does prove relevant in the commitment to engage in innovation but that public funding of museums does not encourage innovation. We also highlight the importance of the explanatory power of the type of funding on the performance of these cultural organizations. This research also reveals how organizational and technological innovations as well as innovation in value creation in museums enhance economic, market and social performance.     

Rivalry and externalities in secondary art markets

Summary As is the case with other field theories, Urban Economics, Environmental Economics, etc. the microeconomics of the arts attempts to derive a set of particular propositions from the general propositions of Economic Theory. In the process a substantial amount of cross-fertilization takes place. The specific characteristics of art markets require modification or amplification of some general propositions of economic theory, which in turn may offer novel and possibly useful insights as well as testable hypotheses. The following propositions appear to emanate from the present paper.In general markets R & D efforts are directed towards product or process innovation. For the most part, a known consumer technology exists. Innovation in art markets involves product creation as well as the creation of a consumer technology capable of deriving satisfaction from consumption of the new product. In open markets, a non-patentable product would entail excessive free ridership. Such a state of affairs may discourage innovation. Primary sellers would tend to adapt to narrowly changing consumer technologies. Such was the case during most of art history up to the late 19th century. At present, museums and art critics act as quasi patent offices, which fosters innovation by assuring a positive sum game.A new consumer technology is expected to be demand-augmenting. Not necessarily in the sence of McCain [12] where discontinuous jumps in demand are postulated. Even if such shifts were to occur in individual demand curves, market demand will nevertheless be continuous. The present model presumes that the augmentation is mostly due to increasing numbers of art buyers entering as the new consumer technology casues substitution of one style for another (or one fad for another). Syndicate behavior is induced by the winners of the race who have successfully established a new consumer technology and subsequently extend an umbrella over the membership. In this manner the spoils are shared more equitably. This is a peculiarly modern phenomenon. In the past one could not put a Teniers above a Rembrandt or a Polidoro above a Raphael. The generally accepted rules of decorativeness, that is, craftmanship and composition were obvious and immediately perceptible by all.In certain instances syndicate behavior favors single leadership by an established dealer, or a small group of dealers with a proven track record in spawning new technologies. Collectors, too, are involved, by overpaying for art. The discovering collector creates entry barriers for other collectors and thus has a monopoly of discovery of purely intellectual appeal art. Followers may opt to reduce their rivalry in exchange for assurances that once the new technology is in place, they will be given the opportunity to recycle the art brought into being by the leader or leaders. Under certain conditions, as analyzed in the foregoing, this constitutes an optimal strategy.As in the classical case, entry reduces investment and drives rents to zero, if each firm invests a roughly equivalent amount in support of the prevailing consumer technology. There arises the limiting case, equivalent to pure competition (see EQ. 10). On the other hand, several counterveiling strategies are possible. For example, overpayment, as in the case of Rothko. This limits the artists' output in the market. Leftover art is donated or acquired by museums. Such art is no longer competitive, as opposed to art held by other collectors, which, diminishes art'sscarcity value.The most probable outcome of a Cournot-Stackelberg type behavior is a succession of leader-follower or leader-recyler type syndicates, each successively dissolving as new consumer technologies replace old ones. It is, of course, possible for several specialized syndicates to operate contemporaneously. The rate of turnover clearly depends on the speed of dissemination of information. The curator, critic, trustee, consultant has a vested interest in episodic art and an spawning new consumer technologies: if this were not so, there would be no need for the pre-eminance of the critic. He is the magician, the priest, the medicine man who knows the secret language and penetrates the mysteries.