The “Death Effect” in the Art Market: Economic Fact or Collector Perception?
Posted by Milissa Malloy on Thu, Mar 10, 2011 @ 06:20 AM
by Alexa Shitanishi, Asset Archives Contents Specialist
It is a commonly held belief that an artist’s work will increase in value after the artist passes away. But is this really the case? This notion, known as the “death effect”, is due in part to our basic instincts of supply and demand as well as our romantic image of the struggling artist who is only truly appreciated in death.
While there is no mathematical model for the pricing of art, it seems logical to assume that price is some function of the amount of works produced by a particular artist. Thus, when an artist dies there is assurance that production is limited, making the finite amount of art in existence more valuable. However, art is not like any other product, and if there was a clear linear relationship between the number of works produced and price, Warhol’s factory-created images would be sold for next to nothing. Then does the “death effect” really exist? Does the effect endure? And what are the implications for investing in art?
The most recent and thorough research on this topic is from a University of Paderborn study conducted in 2007 in which the authors examined the development of auction prices from 1959-2003 of some 560 artists. Prior to this study there were 6 published articles, which used relatively small data pools of various genres and timeframes, resulting in contradictory results. The Paderborn study examines the changes of auction prices from prior to death, immediately after death, and several years post-death to determine if there was a “death effect” and if it endured in the market. Additionally the authors distinguished between “star artists” vs. “ordinary artists” and sudden vs. expected deaths. The results revealed that there was a spike in prices immediately following the artist’s death but this eventually declined to a level only slightly elevated relative to pre-death prices.
Contrary to intuition, the study found that the “death effect” was a supply-induced demand effect. That is, there was an increased demand for an artist’s work based on the expectation of the future value and supply which, in turn, affected auction prices. The increase in demand and prices can also take place in anticipation to death due to the certainty that values won’t be reduced by increased production, assuring rarity in certain pieces. Thus it is the after-death certainty that there will be no more production that stimulates demand for the artist’s work, not the fixed supply.
If the “death effect” was solely due to changed perceptions about future supply, however, the impact on auction prices should be lasting; the prices of an artist’s work should increase after death and maintain these higher levels. This was not the case and after 5 years or so auction prices inevitably declined closer to prices achieved prior to the artist’s death. To explain this eventual decrease in prices, the authors substitute the “death effect” for the “nostalgia effect”.
The “nostalgia effect” was first coined in a study of sports memorabilia in which a similar spike in prices immediately-post death and eventual decline was observed. The “nostalgia effect” describes the immediate rise in auction prices of a celebrity artist or athlete because of the media attention surrounding the person’s death, life, and work. This attention by the media and public eventually recedes into the past, causing auction prices to decline closer to pre-death prices. Thus it would also make sense that this “nostalgia spike” in prices is more pronounced and longer lasting with the prices of “star artists” who garners more media attention.
In summary, the death of a celebrity artist clearly does have an impact on the value of his or her works. This, though, is not an enduring “death effect” but rather a demand-created “nostalgia effect” that will eventually become less pronounced and apparent in the value of the artist’s work.
In terms of investing in art, one shouldn’t purchase a work immediately after an artist’s death with the expectation of a high return, but rather choose a unique masterpiece that can be enjoyed and likely not decline in value.
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