The transformation of the art market: Law, norms, and institutions

Abstract

Over the last three decades, the art market has undergone a remarkable transformation. Before the 1990s, artworks were sold with hardly any concern about whether they had been stolen or looted, whereas now any reputable gallery or auction house checks the “provenance” of any substantial work before sale. This transformation reflects interlocking changes in law, norms, and institutions. New York’s and more broadly the United States’ assertion of jurisdiction and application of U.S. substantive law has destabilized title to stolen and looted goods worldwide because American statutes of limitations generally provide weaker protection for those who possess stolen or looted goods even in good faith. Application of American law has had a profound effect, especially for the high end of the market, because European or Asian investors who purchase art outside of the U.S. may eventually want to sell or display their works in the U.S. Defective title under American law thus affects prices worldwide. The tightening and broader application of American law reflects both longstanding legal principles and changes in social norms towards the redress of historical wrongs, most notably prominent campaigns relating to art confiscated or sold under duress in Nazi Germany. New institutions, most importantly searchable databases recording stolen and looted art such as the Art Loss Register, are also changing perceptions about minimum standards for good faith purchase, which in turn affects both social norms and court cases. These new norms, induced by both legal changes and better information, have influenced the market even for less valuable art, for which sale or display in the U.S. is not a relevant consideration and for which the threat of costly legal action is not credible. The fact that social and institutionalized norms play an important role in protecting original owners is probably good, because norms and institutions can be effective even where law is not and often do so at lower cost.