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Law and the State

Law and the State

A Political Economy Approach

New Horizons in Law and Economics series

Edited by Alain Marciano and Jean-Michel Josselin

Law and the State provides a political economy analysis of the legal functioning of a democratic state, illustrating how it builds on informational and legal constraints. It explains, in an organised and thematic fashion, how competitive information enhances democracy while strategic information endangers it, and discusses how legal constraints stress the dilemma of independence versus discretion for judges as well as the elusive role of administrators and experts.

Chapter 14: Old Master paintings: price formation and public policy implications

Paolo Figini and Laura Onofri


Paolo Figini and Laura Onofri 1 INTRODUCTION The puzzle of price formation in the art market, and for paintings in particular, stems from the difficulty of applying the Marshallian theory of value to this particular market configuration. On one side, marginal utility – and thus demand factors – are not sufficient to define the equilibrium price of paintings; production costs, on the other side, are not able to settle any natural value underlying a painting. In the literature, two alternative positions on price determination coexist. The first one states that ‘the demand fluctuates widely, following collectors’ fads and manias and paintings’ prices are therefore inherently unpredictable’ (Baumol 1986, p. 10): no fundamental value can therefore be identified for paintings. The opposite view assumes that although a natural price linked to production costs does not exist for paintings, market forces determine prices for art objects, as for any other economic good (Frey and Pommerehne 1989). Following this second approach, the literature has recently focused on the mechanisms of price formation in the art market. The heterogeneity of works of art, the monopolistic power held by the owner of the painting, the infrequency of trading, and the existence of different segments in the art market constitute specific and problematic issues, linked to the determination and to the measurement of prices, the research has to deal with. The first necessary step to evaluate the profitability of investment in art, as compared to other financial assets, is to...

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