Art Prices and the Death Effect
Article   06/16/2018
statue of angelPhoto by Alexander Boden
Everyone knows that when an artist dies, the prices of their works go up, right? Well, not exactly. The death effect on art prices has largely been based on anecdotal evidence, but two researchers, Heinrich W. Ursprung and Christian Wiermann from the Center for Economic Studies and Ifo Institute Munich, have done a study of the death effect based on art sales data. In their project, "Reputation, Price, and Death: An Empirical Analysis of Art Price Formation" Ursprung and Wiermann looked at 146,575 art sales between 1980 and 2005 of 262 artists. What they found was that the relationship between the death effect and the artists’ age at death has an inverted u-shape. This means that the death effect is negative for younger artists (i.e. the prices of their works drop), it becomes positive after the artists reach a threshold age, and it drops to zero or has no effect when the artists get very old. Death is the ultimate supply limiting mechanism so when an artist dies, their works suddenly become scarcer than expected. Scarcity is one component of the death effect. The other component is the artist’s reputation. Reputation takes time to build, so younger artists generally have less of it. Collectors will buy the works of promising young artists with the expectation that the artists will eventually gain the reputation that justifies the prices paid for their works. However, if a young artist dies an untimely death, this expectation is frustrated and the prices of the works drop. For older artists who have well established reputations, the prices of their works already have their reputation figured in. When such an artist dies, the scarcity component of the death effect kicks in and there’s a jump in the prices of their works. In the case of very old artists, their reputation is a known factor and the supply of their works is also a known factor since they’re past their most productive years. Thus the two components of the death effect produce a negligible result when very old artists die. The death effect is negative until artists reach an age between 63 and 75. At this threshold age, the death effect is zero. After this age, the death effect becomes positive and reaches it maximum at an age between 83 and 88. Then it starts to drop to zero, but it usually doesn’t become negative again. So, eat well, exercise and try to live as long as you can, artists!