The art of benchmarking: Picasso prints and auction house performance

Abstract

The influence of the auction house on the price of comparable art objects is an issue in the economics of arts literature. The standard approach has been to run hedonic price regressions including the auction house as a dummy variable. The approach in this paper is to apply benchmarking tools developed in the efficiency and productivity literature directly to the auction house as a unit. New performance indices are developed based on a DEA benchmarking technique to analyse auction houses. The new indices discriminate well between auction houses by allowing one to identify both contemporaneous and inter-temporal performances. Additional best performance results are obtained for specific attributes.

Acknowledgements

An early version of the paper was written while the first author was a visiting fellow at the International Centre for Economic Research (ICER), Turin, Fall 2001 to Spring 2002. It is part of the project ‘Cheaper and better?’ at the Frisch Centre, financed by the Norwegian Research Council, and of the project on ‘Cultural goods’ financed by the Italian Research Council. We are indebted to Dag Fjeld Edvardsen for help with preparing calculations and figures. The authors are also grateful to the participants of the XII International Conference on Cultural Economics, Rotterdam, June 2002, for comments. We are also indebted to Orley Ashenfelter and James Pesando for comments on an early version of the paper. The usual disclaimers apply.

Notes

¹ However, a client may force an auction house to sell against its advice.

² In efficiency analyses the measure 1/φ_i is called the output oriented Farrell (1957) measure of technical efficiency.

³ In case of more than one best performance unit it does not matter which one is chosen since the best practice units will have the index value of 1.

⁴ Additional factors, which are suggested to affect cost, such as signature, production period, Zervos catalogue raisonné number, exhibition, resells, and provenance, have not been considered in this study due to the lack of information (Locatelli-Biey and Zanola, 2002),

⁵ Table 2 reports 2 digit figures, but calculations are based on 4 digit figures.