Explaining The Art MArkets Thefts Frauds And Forgeries And Why The ARt MArket Does Not Seem To Care
Gregory Day
Based upon a series of interviews with art market experts, this
Article identifies and answers a significant, yet previously unexplored
economics puzzle affecting the art market. Economics suggests that
markets typically produce efficiency and social wealth, but when they
fail, most actors should prefer remedial measures over an inefficient
status quo. The art market currently is, and has been, plagued with
frauds, thefts, forgeries, and market failure—a state of affairs that the
governing legal framework has made worse. Despite this, the art
market seems to adamantly, and puzzlingly, defend its business
culture, rejecting attempts to remedy inefficiencies. In other words,
why has the art industry remained stable, yet fraught with market
failure?
The research herein finds that reliable product information is
the lifeblood of efficient markets, yet the nature of art encourages many
participants to withhold or conceal important market information.
This often prevents prospective buyers from accurately determining a
work’s value, leading to inefficient behavior. Few actors have sought
change, however, because the economics of art produces a special
conflict of interest: buyers expect art to appreciate in value and thus assume they will resell the work at a higher price, causing them to
prefer a market favoring the sellers. This observation suggests that
efficient markets require buyers and sellers to be sufficiently adverse or
else incur stark inefficiencies.