Essays on Economics of the Arts

In the recent years, a vast number of economic studies focused on the art market and on its development, as well as on the artists as agents of a labour market with features that are particular of art market. However, really few studies analyzed the functioning of the art market as a whole with a theoretical approach, often considering the artist as nothing more than a simple producer of artworks. This dissertation aims to enrich the economics literature with the above-mentioned missing parts. In Chapter 2 we build a model for studying the price formation in the private art market in a context of complete information and full rationality, using a game theory approach. In this first part, the key variables in this market are the market powers of the agents in the market, that define what is the channel through which a certain artwork reaches the public market. Chapter 3 firstly better defines what are the economic and cultural values and how their formation works for artworks, and then it introduces in the just-created framework the effects of information asymmetry among the agents operating in the market, and behavioural aspects in the choices of some of them: besides market powers, also information has a key role in the art market,and it mainly depends on artists’ characteristics, as fame and talent. Chapter 4 empirically investigates these artists’ characteristics, creating a new measure for them, through the use of hedonic regression and quantile hedonic regression, finding that this measure presents a bimodal distribution in all the specifications we implemented, coherently with the superstar theory in the art market, and that there exist various effects than influence the ranking created using our measure. Chapter 2 Chapter 2 analyses the pricing of artworks just created by an artist and sold for the first time in the art market, investigating the price-formation mechanism at work in the private art market. In particular, a game theory approach is used to consider the possible channels (paths) that a new artwork can take to reach a collector or an auction house, assuming price-maximizing agents with full information on market powers and reserve prices. The study is aimed to identify the relationships between the artwork prices and the market power of agents operating in each channel of the market. What we find is that the market power of each of the agents is key to identify the market channel that will be preferred by the artist and, then, her incentive in creating a new artwork. At the same time, the importance of art market intermediaries as the galleries in the formation of art prices is attested and their incentives to enter and remain in the market are confirmed. Chapter 3 Chapter 3 aims to explore the role of cultural and economic value, and of the information on private art market price formation; in this Chapter, we develop a bargaining game model in which we explicitly consider the effects of these issues. Furthermore, we introduce artists’ fame and talent as determinants of an artwork’s cultural and economic value. Assuming artists, galleries, and collectors have different levels of information on the quality of the artworks and on the characteristics of the artists, we study the behaviour of these agents and the potential emergence of disappointment for the sophisticated collectors and undertreatment for the unsophisticated ones. Artworks will be treated as credence goods, experience goods, or search goods, depending on the level of information each agent has at his disposal; this influences the way the price is formed and how the surplus of the trade is shared among the agents in certain particular trade channels. Chapter 4 In Chapter 4, we aim to empirically analyze those characteristics of the artists that influence cultural and economic values, in order to understand how the art market considers them in the formation of prices. To do so, using a unique hand-collected dataset from the Artist Re-sale Rights (ARR) archives of the Societ`a Italiana degli Autori ed Editori (SIAE), we build a novel index of artists’ talent and fame in the Italian art market. The distribution of this measure and the ranking of the artists’ index is analyzed in several model specifications, and the dynamics of the index is also qualitatively studied. Despite of the existence of a price effect, a time effect, and an art genre effect, coherently with the superstars theory, the bimodality of the distribution is confirmed in all our empirical findings.