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We find evidence for the behavioral biases of anchoring and loss aversion. We find that anchoring is more important for items that are resold quickly, and we find that the effect of loss aversion increases with the time that a painting is held. The evidence in favor of anchoring and loss aversion with this large dataset validates previous results and adds to the empirical evidence a finding of increasing loss aversion with the length a painting is held. We do not find evidence that investors can take advantage of these behavioral biases.

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.

Does creativity, on average, increase or decrease during bereavement? Dates of death of relatives and close friends of 33 French artists and 15 American artists were gathered from electronic sources and biographies, and information on over 15,000 paintings was collected from the Blouin Art Sales Index and the online collections of the Metropolitan Museum of Art, the Art Institute of Chicago, the National Gallery of Art, the J. Paul Getty Museum, and the Musée d’Orsay, including more than 12,000 observations on price. An event study indicates that there is no evidence that the death of a friend or relative makes an artist more creative, and there is some evidence that prices of paintings are significantly lower during the first year following the year of death of a friend or relative. Furthermore, paintings that were created during this bereavement period are less likely to be included in a major museum’s collection. The online appendix is available at https://doi.org/10.1287/mnsc.2017.2850 . This paper was accepted by John List, behavioral economics.

This paper addresses the question of whether auction guarantees change the bidding environment and whether they cause a change in price once the value of an item is taken into account. We analyze both the cases of third-party guarantees and in-house guarantees. We use two datasets: one of Christie’s and Sotheby’s Contemporary and Impressionist Evening Sales from January 2010 to February 2012 and another larger dataset consisting of all items auctioned at Christie's from 2001 to May 2011. While more expensive items are more likely to have guarantees, we find little empirical evidence to suggest an effect on price from the guarantee itself once the value of the item is taken into account.

In order to investigate the role of immigrant artists on the development of artistic clusters in U.S. cities, we use the U.S. Census and American Community Survey, collected every 10 years since 1850. We identify artists and art teachers, authors, musicians and music teachers, actors and actresses, architects, and journalists, their geographical location and their status as a native or an immigrant. We look at the relative growth rate of the immigrant population in these occupations over a ten year period and how it affects the relative growth rate of native-born individuals in these artistic occupations. We find that cities that experienced immigrant artist inflows, also see a greater inflow of native artists by about 40%.

Color plays an important part in modern life and influences our decision making process. However, little is known about how the different attributes of color, namely intensity and lightness, influence price. By analyzing auction data for paintings we can put a price on these attributes of color. Using a unique set of data for Contemporary artworks of Andy Warhol prints, we are able to observe the influence of intensity and lightness using RGB values as explanatory variables on prices achieved at auction. Controlling for other hedonic characteristics, our empirical results find significant evidence of intense colors fetching a premium over equivalent artworks which are less intense in color. Furthermore, darkness carries a premium over lightness. (C) 2016 University of Venice. Published by Elsevier Ltd. All rights reserved.

oger de Piles (1635-1709) was a French art critic who ventured beyond the normal realm of his profession. Specifically, De Piles chose 58 famous artists and decomposed their styles into the areas of composition, drawing, color, and expression. He then rated each artist on a 20-point scale in each of these categories and published his findings in his 1708 work, Cours de Peinture par Principes in a table known as the "Balance des Peintres." De Piles' decomposition of the overall quality of an artist into four properties was revolutionary and ambitious at the time and, 300 years later, remains a controversial but extraordinary endeavor. His ratings, combined with historical price records, allow us to confront an art critic's taste with the public judgment of the same artists. Most of the 58 artists chosen by De Piles for his rankings were famous then and have remained important to this day. Furthermore, his higher rated artists achieved higher critical acclaim, and the price of their paintings increased more over time. Our estimates indicate that even in the earliest time period for which we have prices, the artists he favored commanded higher prices. Painting it seems is a superstar market—demand for the paintings of the most popular artists is ever increasing relative to those of other artists.

This article reports the results of an empirical study of the impact of school inputs on pupils' performance in private (independent) schools in the United Kingdom, using a new school-level panel dataset constructed from information provided by the Independent Schools Information Service. The authors show a consistent negative relationship between the pupil-teacher ratio at a school and the examination results achieved by pupils aged 18, controlling for the pupils' performance in examinations two years earlier. The results are noteworthy in comparison with results of studies for the state sector, relatively few of which have found a consistent and statistically significant effect of the pupil-teacher ratio.

The Fulton Fish Market was a colorful part of the New York City landscape that operated on Fulton Street in Manhattan for over 150 years. In 2005 the market moved from the South Street Seaport in lower Manhattan to Hunts Point in the South Bronx. The Fulton Fish Market—now called The New Fulton Fish Market—is one of the world's largest fish markets, second in size only to Tsukiji, the famous fish market in Tokyo. To economists, it may seem that a large centralized market with well-informed buyers and sellers should also be a very competitive market. But fish is a highly differentiated product. Buyers often wish to examine fish themselves, or have their agents do so. The centralized market performs an important function in matching fish to buyers. The high level of product differentiation and the institutional structure in the Fulton fish market can lead to patterns of behavior that suggest imperfect competition and a segmented market. At times in the past, the repeated nature of price setting and extensive knowledge of the sellers may have created the basis for tacit collusion and allowed the dealers to gather economic rents by exploiting the different elasticities and buying patterns. Additional economic rents resulted from subsidies. Before reforms in 1995, lax regulation of the market provided fertile ground for organized crime.

This article proposes an alternative specification for the second stage of the Case-Shiller repeat-sales method. This specification is based on serial correlation in the deviations from the mean one-period returns on the underlying individual assets, whereas the original Case-Shiller method assumes that the deviations from mean returns by the underlying individual assets are i.i.d. The methodology proposed in this article is easy to implement and provides more accurate estimates of the standard errors of returns under serial correlation. The repeat-sales methodology is generally used to construct an index of prices or returns for unique, infrequently traded assets such as houses, art and musical instruments, which are likely to be prone to exhibit serial correlation in returns. We demonstrate our methodology on a data set of art prices and on a data set of real estate prices from the city of Amsterdam.

I. INTRODUCTION In this article, we analyze the prices of violins using two different datasets: one dataset includes 337 observations on repeat sales of the same violins at auction and at dealer sales starting in the mid-nineteenth century, and the other dataset includes over 2,500 observations on sales of individual violins at auction since 1980. The purpose of this article is to give some indication as to whether violins are a viable alternative investment that might be part of a diversified portfolio and to determine if some types of violins have had higher returns than other types of violins. Despite the growing discussion of alternative investments in the economics and finance literature, the growing number of wealthy individuals, funds and syndicates that invest in violins, and the interest in violins as a collateralizable asset, the only previous study of violin prices published in an academic journal was a study by Ross and Zondervan (1989) of repeat sales of 17 Stradivaris. This dearth of academic analysis is most likely due to the difficulty in gathering information on the sale prices of violins. Compared to real estate and even art, the market for high-end violins is "thin" and many violins are sold through dealers rather than auctions, resulting in difficulty gathering the data. To preview our results, overall real returns for the dataset on repeat sales for the period 1850-2009 have been approximately 3.5%. Real returns to the overall portfolio of individual sales at auction since 1980 have also been about 3.3%, not including transaction commissions. The price path has been stable with a slightly negative correlation to stocks and bonds. The overall returns mask differences in returns between different types of violins. It is believed that "better" violins are sold through dealers rather than through auction houses. Indeed, the real return on dealer sales for 1850-2008 was 4.32% and the real return to violins sold at auction for the same period was 2.86%. Since 1980, Modern Italian instruments sold at auction have increased steadily in price relative to Old Italian instruments sold at auction. This article proceeds as follows. The violin market is discussed in Section II, and in Section III we discuss the data and our estimation methodology. In Section IV we present our regression results, and in Section V we interpret our regressions. We conclude in Section VI. II. THE MARKET FOR VIOLINS A. How the Market Works Fiddles--the term used by dealers and collectors to refer to even the finest violins--are sold through both auction houses and dealers and also directly from one musician or collector to another. The main sellers and buyers of these instruments, other than dealers, are musicians, collectors (often foundations), and investors. Individual musicians have used various schemes to purchase a good instrument, including borrowing from banks that specialize in loaning funds against musical instruments and assembling syndicates to raise money. Most collectors, both private and institutional, loan out their instruments to talented musicians. The musician typically pays all insurance and maintenance costs (but not a rental fee); insurance costs range from about 0.5% to about 2% of the value of an instrument. There are also buyers who are interested in purchasing violins primarily as an investment, as part of a diversified portfolio. These instruments are then also loaned out to musicians, who pay insurance and maintenance. Violins are sold through both auction houses and dealers. The relative size of the various markets is very difficult to gauge. Through conversations with dealers and analyzing our auction data, we speculate that auction sales make up between 10% and 20% of the market. One advantage of transacting through a dealer is that it is easier to borrow and try out the instrument (though auction houses also accommodate a small number of potential buyers in this manner). …

When supply and demand are recursive, with uncorrelated cross-equation errors, least-squares estimation has no simultaneous-equation bias. Supply to a daily fish market is determined by the previous night's catch; hence this would appear to be a good example of a recursive market. Despite this, data from the Fulton fish market are treated in the literature, without adequate explanation, as coming from a market in which price and quantity are determined simultaneously. We provide the missing explanation, and in doing so reveal some issues about simultaneity that deserve better coverage in our textbooks and fuller consideration by applied econometricians.

When supply and demand are recursive, with uncorrelated cross-equation errors, least-squares estimation has no simultaneous-equation bias. Supply to a daily fish market is determined by the previous night's catch; hence this would appear to be a good example of a recursive market. Despite this, data from the Fulton fish market are treated in the literature, without adequate explanation, as coming from a market in which price and quantity are determined simultaneously. We provide the missing explanation, and in doing so reveal some issues about simultaneity that deserve better coverage in our textbooks and fuller consideration by applied econometricians.

In order to separate anchoring (where an irrelevant message has an effect on the outcome) from rational learning (where past prices are not irrelevant because they may be used to estimate unobservable quality) we use the following strategy. We first develop a hedonic prediction of price for both the current sale (e.g., the 2006 sale) and the previous sale. These hedonic predic tions are based on observable characteristics of each painting and an index of overall prices. We then regress actual sale price on our hedonic prediction, on the difference between the actual price in the previous sale and our hedonic prediction (this expression tests for anchoring), and on the difference between the actual price in the previous sale and our hedonic prediction of price in the previous sale (this expression controls for unobservable characteristics). The test for anchor ing is the extent to which the actual price in the previous sale affects the current sale price. We can identify anchoring from other effects because the demand for art, which is captured by the average overall price index, changes over time, whereas the unobservable component of qual ity is assumed to remain constant between auctions. This allows us to control for unobserved quality characteristics. As long as something drastic has not happened between sales?such as a painting has been deemed a fake, which is a very rare occurrence?the assumption of constant quality is a realistic one.

Does creativity, on average, increase or decrease during bereavement? Dates of death of relatives and close friends of 33 French artists and 15 American artists were gathered from electronic sources and biographies, and information on over 15,000 paintings was collected from Blouin’s Art Sales Index and the Metropolitan Museum of Art’s online collection, including over 12,000 observations on price. To preview the results, an event study indicates that prices of paintings decrease by over one-third on average in the two years following the death of a friend or relative. Furthermore, paintings that were created during this bereavement period are less likely to be included in the the Met’s collection.

This article reports the results of an empirical study of the impact of school inputs on pupils' performance in private (independent) schools in the United Kingdom, using a new school-level panel dataset constructed from information provided by the Independent Schools Information Service. The authors show a consistent negative relationship between the pupil-teacher ratio at a school and the examination results achieved by pupils aged 18, controlling for the pupils' performance in examinations two years earlier. The results are noteworthy in comparison with results of studies for the state sector, relatively few of which have found a consistent and statistically significant effect of the pupil-teacher ratio. (Free full-text download available at http://digitalcommons.ilr.cornell.edu/ilrreview/.)

We find evidence for the behavioral biases of anchoring and loss aversion. We find that anchoring is more important for items that are resold quickly, and we find that the effect of loss aversion increases with the time that a painting is held. The evidence in favor of anchoring and loss aversion with this large dataset validates previous results and adds to the empirical evidence a finding of increasing loss aversion with the length a painting is held. We do not find evidence that investors can take advantage of these behavioral biases.

In this paper we use data from the London Business School of measuredifferences in outgoing salaries of male and female graduates with a Master's in Business Administration degree. This is a relatively homogeneous population of individuals with very similar educational backgrounds, limited work histories, and who enter very similar jobs upon completion oftheir degree. Controlling for differences in individual characteristics as reported on application forms, we (r)nd that the starting salaries of women are approximately 8.6 percent less than men in identical occupations.

A number of recent papers have found that certain measures of pollution worsen and later improve as income per head increases. It is widely believed that the downhill portion of this inverted-U curve reflects an induced policy response; that, as incomes rise, citizens demand improvements in environmental quality, and that these demands are delivered by the political system. In this paper we find that, for a number of pollution variables, an increase in civil and political freedoms significantly improves environmental quality. For other pollution variables, however, we find that freedoms have no effect. The former finding suggests that political reforms may be as important as economic reforms in improving environmental quality worldwide. The latter finding hints that the observation that pollution levels fall with income, once income becomes high enough, may not always reflect an induced policy response.

In markets where prices are determined by the intersection of supply and demand curves, standard identification results require the presence of instruments that shift one curve but not the other. These results are typically presented in the context of linear models with fixed coefficients and additive residuals. The first contribution of this paper is an investigation of the consequences of relaxing both the linearity and the additivity assumption for the interpretation of linear instrumental variables estimators. Without these assumptions, the standard linear instrumental variables estimator identifies a weighted average of the derivative of the behavioural relationship of interest. A second contribution is the formulation of critical identifying assumptions in terms of demand and supply at different prices and instruments, rather than in terms of functional-form specific residuals. Our approach to the simultaneous equations problem and the average-derivative interpretation of instrumental variables estimates is illustrated by estimating the demand for fresh whiting at the Fulton fish market. Strong and credible instruments for identification of this demand function are available in the form of weather conditions at sea.

Our research investigated pricing policies of fast-food restaurants in predominantly black neighborhoods. We argue that the lack of monitoring of franchisees’ pricing policies leads to higher prices. Results indicate that franchisees are significantly more likely than company-owned outlets to charge higher prices based on the proportion of blacks in a neighborhood. These price differences do not appear to be explained away by cost or competition factors. Our findings do not establish an intent to discriminate; nevertheless, we discuss the fairness of the pricing structure found.

This article reports tests for differences in prices charged by fast-food restaurants that serve markets with customers of widely divergent incomes and ethnic backgrounds. The data contain detailed prices on items sold at over 400 Burger King, Wendy's, KFC, and Roy Rogers restaurants in New Jersey and Pennsylvania locations. I find significant differences in price based on the race and income characteristics of a zip-code region. When income and cost differences are taken into account, meal prices rise approximately 5% for a 50% rise in the black population.

This research estimates the financial returns to owning old Italian violins and discusses whether these instruments should be part of an overall investment portfolio.

In the late 19h century, Alfred Marshall used a fish market as an example of a perfectly competitive market. A hundred years later, New York's Fulton Fish Market has many of the characteristics of a traditional and competitive fish market, despite the documented presence of Mafia involvement. Shivering in the market day after day before dawn, the author recorded sales and prices of whiting to test a primary characteristic of a perfectly competitive market, the “law of one price”. Her results left her like Alice in Wonderland, sitting with her face in her hands, “wondering if anything would ever happen in a natural way again”. Regression analysis - and common sense - came to her aid.

In this article, I report the results of a study of the prices paid by individual buyers at the Fulton fish market in New York City. In principle, this is a highly competitive market in which there should be no predictable price differences across customers who are equally costly to service. The results indicate that different buyers pay different prices for fish of identical quality. For example, Asian buyers pay 7% less for whiting than do white buyers, a result which is inconsistent with the model of perfect competition.

Roger de Piles (1635-1709) was a French art critic who decomposed the style and ability of each artist into areas of composition, drawing, color and expression, rating each on a 20 point scale. Based on evidence from two datasets that together span from the mid-eighteenth century to the present, this paper shows that de Piles’ four characteristics are each both currently and historically correlated with prices achieved at auction. The effect of de Piles’ drawing characteristic on price has steadily decreased over the period 1736-1960 while the effect of de Piles’ color characteristic appears to have increased over the same period. De Piles’ overall ratings have also withstood the test of a very long period of time, with estimates indicating that the works of his higher-rated artists achieved a greater return than his lower rated artists. The annual returns of all artists that he rated achieved comparable returns to other art indices.

We estimate a dynamic profit-maximization model of a fish wholesaler who can observe consumer characteristics, set individual prices, and thus engage in third-degree price discrimination. Simulated prices and quantities from the model exhibit the key features observed in a set of high quality transaction-level data on fish sales collected at the Fulton Fish Market. The model's predictions are then compared to the case in which the wholesaler must post a single price to all retailers. We find the added revenue the wholesaler receives from price discriminating to be small.

The Droit de Suite, known in the UK as Artists’ Resale Rights, provides an artist with the inalienable right to receive a royalty based on the resale price of an original work of art. This paper provides an empirical analysis of actual changes in the UK auction market for art that is newly subject to the Droit de Suite (DDS) because of a change in law. All changes are measured relative to changes for art not subject to the DDS and relative to changes in the auction markets for art in countries where there has been no change in law. We do a difference-in-difference analysis, differencing price growth and sales growth across market segments and across countries over the period 1993–2007. Our results suggest that the introduction of the DDS has not had a consistent negative impact on the UK art auction market during the period of study.

This paper contains a new review of the research of the last decade that has been designed to shed light on how the art auction system works, what it indicates about price formation, and how well it performs. We begin with a short description of the mechanics of the auction system and then organize the remainder of our discussion around two major topics. The first topic concerns how researchers have used auction prices. We begin by discussing the returns to holding art and whether certain classes of art make a better investment. We then discuss studies that have used auction prices to determine the importance of individual works of art and individual artists. We conclude this topic by discussing whether different auction houses achieve systematically different prices. The second topic focuses on studies that examine the influence of the auction mechanism on prices. We begin with a discussion of the Christie's and Sotheby's price fixing case and the role of the competitive behavior of auction houses in the determination of prices. We move on to discuss the role of experts and price estimates in auctions. We then look at whether items that fail at auction subsequently return less than items that have not failed and furthermore discuss sale rates and reserve prices. We conclude this topic by reviewing the extensive literature that has documented and tried to explain why the prices of identical objects are more likely to decline than to increase when multiple units are sold. Subsequent empirical research has tended to document declining prices even when the objects are imperfect substitutes.

The Sotheby’s–Christie’s price-fixing scandal that ended in the public trial of Alfred Taubman provides a unique window on a number of key economic and antitrust policy issues. The trial provided detailed evidence as to how the pricefixing worked, and the economic conditions under which it was started and began to fall apart. The role of the amnesty program was important to the case, and does not appear to have had a role in the cartel’s enforcement of pricefixing or the cartel’s demise. The outcome of the case also provides evidence on the auction process used to choose the lead counsel for the civil settlement. Finally, though buyers received the bulk of the damages, a straightforward application of the economic theory of auctions shows that it is unlikely that successful buyers as a group were injured.

This paper contains a review of the burgeoning research that has been designed to shed light on how the art auction system actually works and what it indicates about price formation. First, we find that in recent years returns on art assets appear to be little different from returns on other assets. In addition, some researchers have found that because of the weak correlation between art asset returns with other returns, there may be a case for the inclusion of art assets in a diversified portfolio. Second, we find evidence of several anomalies in art market pricing. The evidence clearly suggests that, contrary to the view of the art trade, masterpieces underperform the market. In addition, there is considerable evidence that there are fairly long periods in which art prices may diverge across geographic areas and even auction houses. Third, we review the public record of the criminal trial of Sotheby's former Chairman, who was accused of price fixing, to show how the collusion with Christie's, the other great public auction house, was actually engineered. Contrary to the way the proceeds from the settlement of the civil suit in this case were distributed, we show that buyers were almost certainly not injured by the collusion, but that sellers were. In addition, based on the public record of settlement, it appears that the plaintiffs in the civil suit were very handsomely repaid for their injury. Finally, we review the extensive research on the effects of the auction institution on price formation. There is now considerable theoretical research on strategic behavior in auctions, much of it in response to empirical findings, and we review three key findings. First, the evidence suggests that art experts provide extremely accurate predictions of market prices, but that these predictions do not optimally process the publicly available information. Second, high reserve prices, and the resulting high unsold (buy-in) rates are best explained as optimal search in the face of stochastic demand. Third, extensive research has documented that the prices of identical objects are more likely to decline than to increase when multiple units are sold, and this has led to considerable theoretical research. Subsequent empirical research has tended to document declining demand prices even when the objects are imperfect substitutes.

This paper contains a review of the burgeoning research that has been designed to shed light on how the art auction system actually works and what it indicates about price formation. First, we find that in recent years returns on art assets appear to be little different from returns on other assets. In addition, some researchers have found that because of the weak correlation between art asset returns with other returns, there may be a case for the inclusion of art assets in a diversified portfolio. Second, we find evidence of several anomalies in art market pricing. The evidence clearly suggests that, contrary to the view of the art trade, 'masterpieces' underperform the market. In addition, there is considerable evidence that there are fairly long periods in which art prices may diverge across geographic areas and even auction houses. Third, we review the public record of the criminal trial of Sotheby's former Chairman, who was accused of price fixing, to show how the collusion with Christie's, the other great public auction house, was actually engineered. Contrary to the way the proceeds from the settlement of the civil suit in this case were distributed, we show that buyers were almost certainly not injured by the collusion, but that sellers were. In addition, based on the public record of settlement, it appears that the plaintiffs in the civil suit were very handsomely repaid for their injury. Finally, we review the extensive research on the effects of the auction institution on price formation. There is now considerable theoretical research on strategic behavior in auctions, much of it in response to empirical findings, and we review three key findings. First, the evidence suggests that art experts provide extremely accurate predictions of market prices, but that these predictions do not optimally process the publicly available information. Second, high reserve prices, and the resulting high unsold ('buy-in') rates are best explained as optimal search in the face of stochastic demand. Third, extensive research has documented that the prices of identical objects are more likely to decline than to increase when multiple units are sold, and this has led to considerable theoretical research. Subsequent empirical research has tended to document declining demand prices even when the objects are imperfect substitutes.

Instrumental variables (IV) estimation of a demand equation using time series data is shown to produce a weighted average derivative of heterogeneous potential demand functions. This result adapts recent work on the causal interpretation of two-stage least squares estimates to the simultaneous equations context and generalizes earlier research on average derivative estimation to models with endogenous regressors. The paper also shows how to compute the weights underlying IV estimates of average derivatives in a simultaneous equations model. These ideas are illustrated using data from the Fulton Fish market in New York City to estimate an average elasticity of wholesale demand for fresh fish. The weighting function underlying IV estimates of the demand equation is graphed and interpreted. The empirical example illustrates the essentially local and context-specific nature of instrumental variables estimates of structural parameters in simultaneous equations models.

Instrumental variables (IV) estimation of a demand equation using time series data is shown to produce a weighted average derivative of heterogeneous potential demand functions. This result adapts recent work on the causal interpretation of two-stage least squares estimates to the simultaneous equations context and generalizes earlier research on average derivative estimation to models with endogenous regressors. The paper also shows how to compute the weights underlying IV estimates of average derivatives in a simultaneous equations model. These ideas are illustrated using data from the Fulton Fish market in New York City to estimate an average elasticity of wholesale demand for fresh fish. The weighting function underlying IV estimates of the demand equation is graphed and interpreted. The empirical example illustrates the essentially local and context-specific nature of instrumental variables estimates of structural parameters in simultaneous equations models.

The authors study the order of sale in art auctions. The final bid relative to the auctioneer's estimated price declines throughout the course of an auction. A theoretical model shows that, in an auction ordered by declining valuation, even in the presence of risk-neutral strategic bidders, the price received relative to the estimate for later items in an auction should be less than the price relative to the estimate for earlier items. Furthermore, ordering heterogeneous items by value maximizes revenue for the auctioneer.

The second edition of this widely acclaimed and extensively cited collection of original contributions by specialist authors reflects changes in the field of cultural economics over the last eight years. Thoroughly revised chapters alongside new topics and contributors bring the Handbook up to date, taking into account new research, literature and the impact of new technologies in the creative industries.