- Luc Renneboog
Unprecedented high prices commanded for an artist’s work at auction are frequently reported by the popular press. A record sale at US$450.3 million (with a hammer price of US$400 million) for the Salvator Mundi painting (allegedly) by Leonardo da Vinci was auctioned by Christie’s on November 15, 2017. This auction record exceeded the previous auction records of the same year (namely, Twelve Landscape Screens by Qi Baishi, and Untitled by Jean-Michel Basquiat) by more than 300%. The media not only report on absolute price records but also on records by renowned artists and the breakthroughs of artists whose work reaches thresholds of US$1 million, $5 million, or multiples thereof for the first time.
In the light of the prices above, one could wonder why records continue to be broken. A first reason is that the fundamental value of an art object is difficult to determine. The value of an asset is the sum of the discounted future cash flows, but given the absence of a rental market for art, this method cannot be used and one is largely reliant on past prices to set this number. Furthermore, even if one believes that an art object is a store of value and is likely to retain its value in the future, a collector may still pay a higher price because owning an art object may have personal utility. This utility could be called an “aesthetic dividend,” a term which alternatively captures the value assigned to the ability to enjoy the art object (e.g. a painting on one’s wall) on a daily basis; a “dividend on cultural capital” as owning top art may give the collector access to global cultural or business elites; or a “showing-off dividend” when media attention triggered by very high prices caresses one’s ego....