i The Economics of American Art ii iii The Economics of American Art Issues, Artists, and Market Institutions ROBERT B. EKELUND, JR., JOHN D. JACKSON, AND ROBERT D. TOLLISON 1 iv 3 Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries. Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America. © Oxford University Press 2017 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by license, or under terms agreed with the appropriate reproduction rights organization. Inquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above. You must not circulate this work in any other form and you must impose this same condition on any acquirer. Library of Congress Cataloging-in-Publication Data Names: Ekelund, Robert B. (Robert Burton), 1940– author, Jackson, John D., Tollison, Robert D. Title: The economics of American art : issues, artists and market institutions / Robert B. Ekelund, Jr., John D. Jackson, Robert D. Tollison. Description: New York : Oxford University Press, 2017. | Includes bibliographical references. Identifiers: LCCN 2016052819 | ISBN 9780190657895 (hardback : alk. paper) | ISBN 9780190657901 (upub) Subjects: LCSH: Art—Economic aspects—United States. Classification: LCC N8600 .E39 2017 | DDC 707—dc23 LC record available at https://lccn.loc.gov/2016052819 9 8 7 6 5 4 3 2 1 Printed by Sheridan Books, Inc., United States of America v For Mark, Martha Gale, and Anna and For the late Bob Tollison, whose love, dedication to economics, and influence endure vi vii Contents Preface  xi CHAPTER 1. Markets, Culture, and American Art 1 Economics as a Conduit for Analyzing Culture and Art? 5 Why a Book on the American Art Market? 9 Credence: A Central Issue Relating Economics to Art 10 Interesting Questions Posed in the American Art Marketplace 12 CHAPTER 2. Dimensions of the American Art Market 16 The Marketplace of American Art: Early Period 17 Shifting Demand Parameters 20 The American Art Market at the Opening of the Twentieth Century 25 The Armory Show 1913, Stieglitz, and American Modernism 27 Postwar Ascendance of American Art 31 Art, Politics, and Then- Contemporary Art 33 Changes in the Markets for Contemporary American Art 36 American Artists Used in Formal Studies in This Book 37 Artistic Styles 40 Buying and Selling American Art 44 Auction Sales of American Art 46 The Credence Factor and the Auction Market 49 American Art and Institutional Change 52 viii viii Contents CHAPTER 3. Mystery of the Artist’s Nature: Creativity, Age, and Economics 56 The Age- Creativity Relation and American Artists 58 The Artist and Societal Structures 58 The Economist Speaks 60 Artists Born Prior to 1900 and the Age- Productivity Hypothesis 61 Artists Born between 1900 and 1960 and the Age- Productivity Hypothesis 63 Measurement and Model Specification 65 Artists Born before 1900 65 A Fixed- Effects Model 76 Data on Cohort of Artists Born between 1900 and 1960 78 A Fixed- Effects Model of Artists Born Post-1 900 83 Is the Growth of “Innovation” Positive through Time? 84 The Use of Anecdotal or “Bibliometric” Evidence 87 Anecdotal Analysis of Georgia O’keeffe 88 Anecdote and Jackson Pollock 90 Schools and Creativity 96 Factors Affecting Creativity 100 CHAPTER 4. American Art, “Experts,” and Auction Institutions 104 Experts, Credence, and the Auction Process 106 Auction Houses and Credence 106 Estimating Auction Bias 107 Buyers’ and Sellers’ Premiums 111 Estimation Procedure 113 A Model for Investigating Bias in Presale Auction Estimates 114 Predicting No- Sales 121 Are American Paintings That Do Not Sell “Burned”? 125 Premium Manipulations and Auction- House Profits 130 Artists and Auction Markets 136 CHAPTER 5. Early and Contemporary American Art as Investment Vehicles 139 American Art as an Investment Vehicle 140 Art as an Investment: Conventional Wisdom 142 Returns to American Art Investment 144 ix Contents ix Methodological Considerations 145 Repeat- Sales versus Hedonic Approaches: Pros and Cons 146 Data Considerations in Our Analysis of Early American Art 150 Repeat- Sales Investment Estimates: Early Period 151 Hedonic Investment-R eturn Estimates: Early Sample 156 Investment- Return Estimates for Contemporary Art 162 Data Considerations in Our Analysis of Contemporary American Art 163 Hedonic Results for Contemporary Artists 164 Repeat- Sales Results 165 Early American versus Contemporary American Art: Two Distinct Markets 168 Investment in American Art 169 CHAPTER 6. American Art and Illegal Activity: An Economic Perspective 171 Credence and Information Costs 172 Art Theft 173 Art Theft: General Considerations 175 Marginal Benefits of Art Theft 176 Marginal Costs of Art Theft: Apprehension, Conviction, Severity 177 Evolution of the Market for Art-T heft Enforcement: An Economic Analysis 179 The Market Responds 182 The Economics: Demand, Supply, and Information 184 Fakes and Forgeries 187 Print Forgery 190 The Benefits and Costs of Fakes and Forgeries 192 Credence and Examples of Forgery and Art Crime 195 Fake Detection: Provenance and Science 200 Economists Predict That Theft and Fakes Will Continue 205 CHAPTER 7. The Impact of Death and Bubbles in American Art 208 The Death Effect in Art 208 An Artist’s Death and Economic Theory 210 The Coase Conjecture 210