1. Introduction - Erasmus University Rotterdam thesis.docx  · Web viewFurthermore, the research looks at the determinants of consumer’s demand for art and their underlying behavior

Erasmus University Rotterdam

Faculty of History and Arts

Master Programme Cultural Economics and Cultural Entrepreneurship

Zhenhuan Xu

324459

An Attempt to Open “Pandora’s Box”

-Measuring Cultural Value of Art on the Dutch Art Rental

Market

Art-leasing gallery Beeldkracht

Master Thesis Written under the supervision of

Dr. Filip VermeylenDr. Kristien Werck

Rotterdam, Dec 2010

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TABLE OF CONTENTS

1. INTRODUCTION................................................................................................................41.1 INTRODUCTION.......................................................................................................................................... 41.2 RELEVANCE OF RESEARCH.....................................................................................................................51.3 RESEARCH QUESTIONS............................................................................................................................61.4 OUTLINE OF THESIS..................................................................................................................................61.5 RESEARCH METHODS...............................................................................................................................7

2. THEORETICAL FRAMEWORK......................................................................................92.1 THE VALUE AND VALUATION OF CULTURAL GOODS..................................................................9

2.1.1 The relevant terms.............................................................................................................................. 92.1.2 The value of cultural good........................................................................................................... 102.1.3 Measurement of cultural value...................................................................................................142.1.4 Conclusions........................................................................................................................................ 16

2.2 ECONOMIC VALUE OF ART.................................................................................................................172.2.1 Introduction....................................................................................................................................... 172.2.2 Determinants of art prices............................................................................................................ 20

2.2.2.1 Artwork-specific features......................................................................................................................................212.2.2.2 Artist-related factors................................................................................................................................................232.2.2.3 External factors.........................................................................................................................................................25

2.2.3 Financial returns of art investment..........................................................................................272.2.4 Conclusions........................................................................................................................................ 29

2.3 CULTURAL VALUE OF ART.................................................................................................................312.3.1 Introduction....................................................................................................................................... 312.3.2 What is cultural value of art and the psychic return of art?...........................................312.3.3 How to evaluate cultural value of art?....................................................................................32

2.3.3.1 The finance-theoretic approaches.......................................................................................................................332.3.3.2 Willingness-to-pay-based approaches...............................................................................................................35

2.3.4 Limitations of those approaches................................................................................................362.3.5 Conclusion.......................................................................................................................................... 37

3. BACKGROUND INFORMATION-ART LEASE IN THE NETHERLANDS............403.1 HISTORY OF ART LEASE IN THE NETHERLANDS...........................................................................403.2 HOW DOES ART LEASE WORK IN THE NETHERLANDS?..............................................................403.3 THE FEATURES OF ART LEASE IN THE NETHERLANDS...............................................................42

4. RESEARCH METHODS AND RESULTS QUANTITATIVE RESEARCH..............444.1 INTRODUCTION........................................................................................................................................444.2 RESEARCH METHODS AND SAMPLING.............................................................................................454.3 DATA COLLECTION AND VARIABLES...............................................................................................464.4 VALIDITY AND RELIABILITY...............................................................................................................484.5 RESULTS AND CONCLUSIONS..............................................................................................................494.6 CONCLUSION............................................................................................................................................52

5. RESEARCH METHODS AND RESULTS QUALITATIVE RESEARCH.................545.1 INTRODUCTION........................................................................................................................................545.2 CRITERIA FOR SELECTING THE ART RENTAL INSTITUTION.......................................................555.3 VALIDITY AND RELIABILITY...............................................................................................................565.4 DATA ANALYSIS OF THE QUALITATIVE RESEARCH.....................................................................56

5.4.1 The practical factors that influence the WTP.......................................................................565.4.1.1 Level of the art market............................................................................................................................................575.4.1.2 Art rental organization itself.................................................................................................................................585.4.1.3 Location and housing condition of consumers...............................................................................................615.4.1.4 Business model of SBK Amsterdam..................................................................................................................62

5.4.2 Implications of the practical factors.........................................................................................625.4.3 People’s purpose(s) of renting an artwork and their consumption behavior...........64

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5.4.3.1 People’s purposes of renting artworks..............................................................................................................645.4.3.2 Underlying behavior of the consumers.............................................................................................................66

5.4.4 Implications of the purpose(s) and the underlying behavior..........................................685.5 CONCLUSION............................................................................................................................................69

6. CONCLUSION...................................................................................................................736.1 CONCLUSION QUANTITATIVE RESEARCH........................................................................................736.2 CONCLUSION QUALITATIVE RESEARCH...........................................................................................746.3 LIMITATION AND FUTURE RESEARCH..............................................................................................76

BIBLIOGRAPHY...................................................................................................................78

APPENDIX 1: THE PROCESS OF ELICITING THE CONSUMER’S WTP THROUGH THE CV METHOD..........................................................................................83

APPENDIX 2: THE PROCESS OF THE DATA COLLECTION FOR THE FACTORS..................................................................................................................................................89

APPENDIX 3: THE QUESTIONNAIRE.............................................................................92

APPENDIX 4: GRAPHS AND TABLES OF DATA ANALYSIS.....................................97

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1. Introduction

1.1 Introduction

When measuring something, most have a straight mind to look at its price. Any item in the

society where we live is more easily evaluated when it is given a number value. The number

is given on the basis of what it is and what are the components that make up the cost. For

example, a car or a TV can be priced according to its material and labor costs. However, we

cannot measure art or culture simply with those economic costs, since the value of some of

them, in particular a masterpiece or a historic monument is much higher than the economic

costs that have ever been spent on creating them. Skim the artworks that have been sold by

auction in recent years and you will have to notice how exclusive their values were

established. Jackson Pollock’s “No.5, 1948” was sold in a private sale via Sotheby’s for $140

million in 2006. In the same year, Willem de Kooning’s “Woman III” was sold in a private

sale via Larry Gagosian for $137.5 million. In 2008, Andy Warhol’s “Eight Elvises” was

auctioned by Philippe Ségalot for $100 million and Francis Bacon’s “Triptych, 1976” was

sold by Sotheby’s New York for $86.3 million. In 2010, Pablo Picasso’s “Nude, Green

Leaves and Bust” was sold by Christie’s New York for $106.5 million. In addition, the

world’s most famous paintings, especially old masterpieces done before 1800 are owned by

museum, which were rarely sold and as such, they are in principle priceless. “So that the

prices of such art objects maybe strictly unnatural in the classical sense (Baumol, 1866).”

The mystery of art price has evoked economist’s great interest. “What is the value of art and

how can we measure it?” These questions have attracted the attention of economists,

especially cultural economists for a considerable number of years. As an economist, they are

expected to elaborate on the economic values of art for their own sake. However, “the

economic value is hardly ever decisive in cultural disputes (Klamer, 2001)”. They understand

that the value of a Pablo Picasso does not rely on the costs of his time and materials like

regular work. “It is different because people treat it differently (Klamer, 2001).” People are

buying a painting not only because it is a painting. They appreciate its artistic, aesthetic,

unique or other special qualities. People are bidding a price for a wooden sculpture not

because it is a piece of wood, but attributes to its symbolic meaning or inspiration that it

provides to them. All those values are different from economic values in the classical sense.

As cultural economist considers, they are cultural values that art inherently possesses. They

make art exceptional and distinguish it from other goods. How to put a monetary term on

those cultural values has been proven to be a difficult task for economists.

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This thesis is taking this challenge and exploring cultural value of art on the Dutch art rental

market. The focus is on the measurement of this value in an economic context. As a cultural

economist, we expect to find out whether we can measure it from the economic perspective.

In addition, we try to examine what are the difficulties of measuring it in the economic

context.

1.2 Relevance of research

Since Wagenführ1 was one of the first professional economists that systematically studied the

development of art prices and rates of return, a mass of studies on the value and valuation of

art have been devoted to the analysis of art investments and the determinants of art prices

over 45 years. Their great interest attributes to people’s belief that the art market yields huge

profits, which derives from the fact that there have been enormous prices that are paid today

for some masterpieces. As Frey & Eichenberger (1995) perceived, there are three goals that

the economists are concerned with in their study of art market: (1) the art market is taken to

be a market as any other and their effort is to compare the financial returns generated from art

with alternative investments. (2) they see the art market as a good opportunity to apply the

modern techniques of finance and econometrics in order to for example investigate whether

the art market is efficient. (3) they are interested in the specific and unique features of art and

the art market. Therefore, the general shortcoming of those studies as Frey & Eichenberger

(1995) see is their undue focus on mechanistic calculations and their disregards of the

underlying behavior of the various actors.

One of the advantages of the thesis is to look at these missing behavioral foundations. In

particular, we strive to address the importance of cultural value of art and analyze its

determinants from both the demand and supply sides. In addition, it examines the direct

approach2 of measuring it that Frey & Eichenberger (1995) proposed on the Dutch art rental

market. Therefore, it enriches studies on the measurement of cultural value of art in practice.

Furthermore, the research looks at the determinants of consumer’s demand for art and their

underlying behavior in the market, in particular the socio-economic characteristics of

consumers, their purposes of renting an artwork and consumption behavior. This is conducive

to the art rental organizations in the Netherlands to improve their services and art supplies

1 In the paper “On the return of art investment return analyses”, his name was mentioned. 2 The approach is: the consumption benefits of viewing art should be revealed in the rental fees for art objects. (Frey & Eichenberger,1995)

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since the research helps the art organizations to enhance a better understanding on their

consumers.

1.3 Research questions

Research question

1. Can we measure cultural value of an art object with people’s willingness to pay for

renting it on the Dutch art rental market?

Sub-questions:

1. Can people’s WTP for renting an artwork reflect all aspects (functioning’s) of its cultural

value on the Dutch art rental market?

2. What factors do influence people’s demand for art on the Dutch art rental market?

Research question

2. What are the difficulties of measuring cultural value of art on the Dutch art rental

market?

Sub-questions:

1. What are the practical factors that influence people’s demand for art on the Dutch art rental

market?

2. What are the purpose(s) of people renting an artwork on the Dutch art rental market? What

is the underlying behavior of the consumers on this market?

Aim of the research

The aim of the research is to examine whether we can measure cultural value of art with an

economic evaluation method and investigate what are the difficulties of measuring cultural

value of art in an economic context.

1.4 Outline of thesis

Chapter 2 builds up a theoretical framework for the research. In this chapter, important

theories and concepts are discussed. The study on the value and valuation of works of art is

being done to understand to what extent we can measure cultural value of works of art with

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economic valuation method is. And it also provides a theoretical underpin to explore the

difficulties of measuring it. And then the study on economic value and cultural value of art

provides us concrete theoretical concepts and methods to measure cultural value of art on the

Dutch art rental market. They are all essential to support my findings and generate

conclusions.

After developing the theoretical framework, chapter 3 deals with the specific case-the Dutch

art rental market. It addresses the background information of art lease in the Netherlands.

The research methods and research results of the quantitative and qualitative study are

discussed and presented in chapter 4 and 5 respectively. And the sub-questions of the studies

are answered based on the research results in these chapters.

Chapter 6 summarizes a clear conclusion on both the quantitative and qualitative findings. In

addition, limitations of this study are discussed and recommendations for future research are

suggested.

1.5 Research methods

In order to answer two research questions, we used both quantitative and qualitative methods

to conduct the research. The research strategy in this study was therefore mixed methods.

The research design of the quantitative study was a cross-sectional design. The unit of

analysis of this study was the consumer that is interested in renting an artwork on the Dutch

art rental market. We collected in total 40 questionnaires through both face-to-face and online

surveys. The aim was to examine the level of cultural value that people are interested in and

investigate to what extent we can measure cultural value of art with an economic evaluation

method. With SPSS an examination was made and conclusions were drawn based on the

results.

After conducting the quantitative research, we went on to investigate what are the difficulties

of measuring cultural value of art on the art rental market in a qualitative study on the supply

side. The research design of the qualitative research was a “case study”. It investigated the

Dutch art rental market and also focused on an art rental institution-SBK Amsterdam and its

subsection-SBK Breda in particular. The aim of this study was to investigate what practical

factors influenced people’s demand for art on the market and whether their WTP for renting

art can measure completed aspects (functioning’s) of its cultural value in this market. We

divided data for the research into two units: the practical factors that influence the WTP, and

the purpose(s) of people renting artworks and their consumption behavior. We collected

qualitative data from observation and examination of documents in connection with the Dutch

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art rental market and as well the Dutch art rental institution - SBK Amsterdam. And we also

collected data by conducting semi-structured interviews with the personnel’s of SBK Breda (a

subsection of SBK Amsterdam). The data have been used to generate conclusions for the

study.

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2. Theoretical Framework

2.1 The Value and Valuation of Cultural Goods

2.1.1 The relevant terms

Cultural goodBefore touching upon the value of art, it should be known that art is a cultural good. For ages,

it has been argued amongst cultural economists that cultural goods are differentiated from

‘ordinary economic goods3’. For example, It has been suggested by Throsby (2001:167) that ‘

a cultural good is one which has involved human creativity in its making, which conveys

symbolic meaning (or multiple meanings) and which is identifiable, at least in principle, as

embodying some intellectual property’. These characteristics of a cultural good can be seen as

a useful first step towards making a distinction between cultural good and ‘ordinary economic

goods’ (Throsby, 2001). Klamer (2001) looks at the cultural good from a different point of

view with Throsby. Cultural goods according to him represent, or serve to realize, cultural

values; and their value is that they mean something over and beyond what ever economic and

social values they have.

Cultural capitalThese two points of view also reflect on two different opinions over cultural capital. As

Throsby (in Towse 2003) proposed, “cultural capital can be defined as an asset which

embodies, stores or gives rise to cultural value in addition to whatever economic value it may

possess”.4 And cultural capital according to him exists in two forms: tangible and intangible

cultural capital. Tangible cultural capital are in the form of artworks and artefacts such as

paintings and sculptures; and intangible cultural capital include artworks which exist as

purely public goods, such as music and historical buildings. Either form of cultural capital can

generate both cultural and economic values. However, It does not only mean that this stock

gives rise to a flow of capital services over time which may enter final consumption directly,

3 Throsby (2001) pointed out ‘ordinary economic goods’. However, Klamer (2001) favors ‘good in general and cultural goods in particular’. 4 It is second definition of cultural capital from Throsby. The first one is that items of cultural capital are simply cultural goods which happen to be capital goods rather than consumption goods (Throsby, in Towse 2003). In this respect, such a definition of cultural capital presupposes a definition of a cultural good.

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or which may be combined with other inputs to produce further cultural goods and services,

but also means that it may deteriorate over time, necessitating investment in its maintenance

or refurbishment.5 In contrast, Klamer (2001) declared that cultural capital is the ability to

realize a meaningful life over and beyond its economic and social dimensions. In this sense, it

is the mere ability to deal with cultural values, regardless of the possible economic returns6.

Visual arts In the research, art refers to the visual arts. The visual arts are centered upon the art market,

where producers, distributors and consumers exchange art objects (Velthuis, in Towse 2003).

As Velthuis (in Towse 2003) elaborated, the visual arts is the sector of the art world where

old, modern and contemporary works of art are produced, distributed and consumed. This

sector includes three different types of economic actors and institutions: actors who exchange

works of art on the art market, cultural institutions and organizations that provide financial

support to the visual arts. (Velthuis, in Towse 2003) In this respect, this is a definition from

economic point of view. From artistic point of view, the visual arts are art forms that create

works of art that are primarily visual in nature, such as drawing, painting, sculpture, photo,

and ceramic.

2.1.2 The value of cultural good

In the domain of cultural economics, there have been crucial debates over the relationship

between economic value and cultural value in considering the valuation of cultural goods in

the economy and society. As noted in the previous section, the divergence occurs when

cultural economists define cultural good and cultural capital. Accordingly, they also have

different opinions over economic value and cultural value of cultural goods. Up to present,

there are several outstanding viewpoints on this relationship when dealing with the valuation

of cultural goods.7

5 According to Throsby (2003 in Towse), both tangible and intangible forms of cultural capital exist as a capital stock, which could be assigned an asset value in both economic and cultural terms at a given point in time. This stock gives rise to a flow of capital services over time which may enter final consumption directly, or which may be combined with other inputs to produce further cultural goods and services. 6 As Klamer (2001) states, his cultural capital is more than the symbolic knowledge that Bourdieu takes it to be. It is less than what Throsby (2001) defines it to be, as he includes all tangible and intangible cultural goods. Throsby furthermore advances the notion of cultural value to mean that it generates both cultural and economic values. Klamer’s cultural capital is the mere ability to deal with cultural values, regardless of the possible economic returns. 7 These viewpoints provide an underpinning (or evidence) for the application of the valuation of art on the art market.

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First, from conventional economist’s point of view, such as Grampp (1989) and Cowen

(1998)8, cultural value can be adequately captured within an economic theory of individual

utility. In this sense, cultural goods are economic goods and their cultural value can be

measured with economic instruments. To be more precise, neoclassical economic theory is

based on subjective expected utility maximization9, which determines people’s willingness to

pay for a good, and finally reach an equilibrium price for it. Therefore, people’s willingness

to pay for a good in the form of its market price can encompass all the value of the good

including its cultural value.10 For that reason, it is no need to separate concept of cultural

value in economic analysis.

Nevertheless, this viewpoint is not persuasive, since it has been argued that people’s

willingness to pay is not an adequate or appropriate indicator of cultural value.11 Referring to

it, Throsby (2001) has given four substantial reasons: (1) people’s insufficient information or

knowledge about the cultural good cannot make a reliable willingness-to-pay judgment about

it. (2) Some characteristics of cultural value cannot be expressed in terms of preferences. (3)

Some characteristics of cultural value only can be measured but not be able to be translated to

monetary merit. (4) Some problems may occur in using individual willingness to pay as an

indicator of cultural value, for example, when free-riding problem occurs.

Second, a cultural good is considered as a distinctive commodity. And it is necessary to

consider economic and cultural value as distinct entities when defining it. In addition, cultural

value can be related to economic value, in the sense that cultural value can be generated and

transmitted into inputs in an economic valuation process being measured. From this point of

view, the theory of value in economics can be applied to cultural goods. However, it does not

tell a full story about the value of cultural good. Throsby is one of the advocates of this point

of view. As Throsby (2001) pointed out, cultural goods can be divided into private cultural

goods and public cultural goods, and most cultural goods are mixed goods which have both

private- and public-good characteristics, such as paintings, sculptures and photos.12 As for

private cultural goods, Throsby (2001: 24) declares that the market price will be the only 8 See Klamer (2001) page 14 that Grampp and Cowen are consistent when they argue that the price of a good is its value. 9 See Schoemaker (1982). 10 As Throsby (2001:31) explained, “the argument would then run that, if this individual ranks object A more highly in aesthetic, spiritual, or other terms than object B, she will be prepared to pay more for object A than for object B, other things being equal. The differential in demand prices could thus be interpreted as a measure of difference in cultural value”. 11 According to Throsby (2001:32), “the most obvious one would be to assert that cultural value is inherent in objects or other cultural phenomena, existing independently of the response to the object by the consumer”.12 See Throsby (2001:23).

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limited indicator of its economic value, partly because of the shortcomings of price as a

measure of value for any economic good, and partly because of the additional characteristics

peculiar to cultural goods. According to him, the main shortcomings of price are that it is

distorted through for example imperfectly competitive markets and incomplete information,

and it cannot reflect the consumers’ surplus enjoyed by purchasers of a commodity. And the

special characteristics of cultural goods are that people’s demand for them must account for

people’s time-dependent taste rather than timeless utility-maximization on the demand side.

On the supply side, producers of cultural goods may create for their own sake instead of for

profit maximization. Therefore, the equilibration process will be considerably weakened for

cultural goods. As for public cultural goods, such as historical buildings, bridges, and

museums, although they are non-tradable, still their externality can be seen as economic

value, and it can be estimated with economic measurement by assessing their demand

functions through normal market channels. (Thorsby, 2001: 25) Nevertheless, due to the same

reasons for that prices are limited indicators for private cultural goods and in addition,

“because of inadequacies and biases in the measurement techniques themselves” (Throsby,

2001: 25), those estimates are also limited indicators of their economic value.

Cultural value requires being paid attention based on this viewpoint. The characteristics of

cultural goods give rise to their cultural value and they include aesthetic properties, spiritual

significance, symbolic meaning, historic importance, significance in influencing artistic

trends, authenticity, integrity, uniqueness and so on.13 (Throsby, 2003: 280) According to him,

those characteristics can form the preferences of individuals for a cultural good and the

preferences can be captured in an economic valuation process. Therefore, he suggests that

cultural value of cultural good is closely related to its economic value.

In order to better explicate the relationship between economic value and cultural value,

cultural capital is defined by Throsby (2001: 44): it is “an economic sense can provide a

means of representing culture which enables both tangible and intangible manifestations of

culture to be articulated as long-lasting stores of value and providers of benefits for

individuals and groups”. In this respect, cultural capital exists in two forms: tangible cultural

capital and intangible cultural capital. Tangible cultural capital has the same characteristics as

physical or human made capital, such as painting, sculpture, historical buildings, and

artefacts. Intangible cultural capital occurs as intellectual capital in the form of ideas,

practices, beliefs and values, such as music, literatures and other public goods.

13 Those characteristics of cultural good were explained in Throsby’s book “Economics and Culture” (2001) as a range of cultural value characteristics including: aesthetic value, spiritual value, social value, historical value, symbolic value, and authenticity value.

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“Both tangible and intangible cultural capital existing at a given point in time as a capital

stock valued in both economic and cultural terms in its own right as an asset. This stock gives

rise to a flow of capital services which may enter final consumption directly, or which may be

combined with other inputs to produce goods and services having both economic and cultural

value. These further goods and services may themselves enter final consumption or may in

turn be combined with further inputs, and so on.” (Throsby, 2001: 46-47).

In addition, cultural capital stock may decay over time and may require the expenditure of

resources for maintenance 14(Throsby, 2001: 47). The concept of cultural capital

demonstrates the relationship between economic value and cultural value and the relationship

is various when considering between tangible and intangible cultural capital. Tangible

cultural capital as a stock derives economic value from its cultural value, in other words,

cultural value gives rise to economic value. For example, painting can generate remarkable

monetary worth because of its cultural value rather than pieces of paper or wood. And

likewise, the stock can give rise to a flow of goods or services, which can generate cultural

value and economic value again. In contrast, intangible cultural capital has only cultural value

and the cultural value can give rise to a flow of goods and services, which can yield both

cultural value and economic value. Therefore, as Throsby (1999 & 2001) concluded, there is

likely to be a correlation between the cultural and economic value of items of cultural capital,

but the relationship will be by no means a perfect one.

Third, cultural value is entirely differentiated from economic value. In this respect, cultural

value cannot become people’s preferences being measured in an economic valuation process.

Arjo Klamer is one of the advocates of this viewpoint. Klamer (2001) sees value in a non-

economic way. As noted in the previous section, art demand (or consumption) accounts for

people’s time-dependent taste from an economist’s point of view. However, he interprets this

phenomenon as “valorization”. It means a process that “value may change. People develop

values and adopt new values. They may learn to develop a positive attitude.” (Klamer, 2001)

According to Klamer (2001), the economic value of a cultural good is what people are willing

to pay for it and it refers to the prices of things or their exchange value. Accordingly, he

considers that economic capital is a stock that will generate a flow of economic values. In

14 As Throsby (2001: 47) further explained, the net effect of all of these additions to and subtractions from the capital stock within a given time period indicates the net investment/disinvestment in cultural capital during the period, measurable in both economic and cultural terms, and determines the opening value of the stock at the beginning of the next period.

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contrast, cultural values are the values that evoke a quality over and beyond the economic and

the social. And they include a range of cultural value characteristics as defined by Throsby

(2001): aesthetic value, spiritual value, historical value, symbolic value and authenticity

value. However, social value is not included, since it is categorized separately. (Klamer,

2001) As he defined, “social values are the values that work in the context of interpersonal

relationship, groups, communities and societies”. The best examples of social value are

freedom and entrepreneurial. So the value of cultural good has three categories: economic,

social and cultural values. Based on this viewpoint, Klamer (2001 & 2002) defined cultural

capital as the ability to realize a meaningful life over and beyond its economic and social

dimensions. It is the power to inspire or to be inspired, and this power is “what enables people

to strive for the good or valuable life, that is a life in accordance with relevant economic,

social, cultural and other values”. (Klamer, 2001 & 2002) In other words, it is the mere

ability to deal with cultural values, regardless of the possible economic returns (Klamer, 2001

& 2002). Therefore, his cultural capital is more than the symbolic knowledge that Bourdieu

(1996) and less than Throsby’s (2001), which generates both cultural and economic values.

However, as Klamer (2001 & 2002: 467) added, although those values are distinctive entities,

it does not mean that they are irrelevant. In this respect, cultural capital and social capital can

contribute to the generation of economic value in one’s life. For example, an artist with

inspiration and good artistic knowledge and skills can create great artworks and the artworks

can generate economic worth if they are appreciated by others. On the contrary, economic

capital can also be positively related to cultural capital. For example, it provides people’s

opportunity to invest in cultural capital, such as education. However, as Klamer (2001)

declares, no matter what relationship between cultural and economic capital, “when people

‘invest’ in their cultural capital for the purpose of economic gain, the efficacy of their

investment will be less than if the investment had only a cultural purpose”. Consequently, he

addressed the great importance of cultural capital. Nevertheless, he also admitted that

deficient measurements are the main obstacle to realize the great importance of cultural

capital.

2.1.3 Measurement of cultural value

As noted in the previous section, although cultural economists have realized the great

importance of cultural value in the valuation of cultural goods, they have also admitted that it

is not an easy task to measure this value. We turn now to examining several assessment

methods that have been brought into the valuation of cultural value.

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In general, a number of specific valuation methods have been used in the social sciences and

the humanities, which include: mapping, thick description, attitudinal analysis, content

analysis, and expert appraisal. (Throsby, 2001: 29-30) However, whether those methods can

entirely capture cultural value is questioned by Throsby (2001: 30), since he considers that

cultural value is no singular nature and those methods cannot capture all the aspects of

cultural value.

In particular, several economic evaluation methods have been applied to measure cultural

value of cultural goods, especially the non-market cultural goods. (1) The impact study. This

approach focuses on the pure economic gains that a cultural good can generate. The economic

gains are not only the direct economic gains, i.e. monetary worth, but also the indirect

economic gains, such as increasing employment, more tourists, and the positive effects for

surrounding business. (Van den Berg, 2010: 19) (2) Revealed preference methods. These

evaluation methods are in particular designed for public goods and cultural goods with a

public-good characteristic, such as heritages and monuments. They can be divided into two

kinds: the travel cost method and the hedonic price method. The travel cost method is based

on the proposition that consumers’ valuations of cultural assets are revealed by how much

they say they would be prepared to pay (actually pay) in travel costs to visit it. (Throsby,

2001: 81, Snowball, 2008, Hoevenagel, 1994, & Frey, 2000) The hedonic price method

measures the non-market value by seeking relevant market data15, such as house prices.

(Throsby, 2001: 81, Frey, 2000, and Snowball, 2008) In this respect, its use depends on

whether there is sufficient market data available. (3) Stated preference methods. They directly

ask respondents what value they place on a good in hypothetical scenarios. Contingent

valuation methodology (CVM) is the most widely used one. It is contingent upon the given

scenario, asks respondents directly what they would be willing to pay, or willing to accept in

a hypothetical market situation to conserve or expand some public goods. (Snowball, 2008 &

Throsby, 2001) However, this method has been criticized due to a number of biases that may

affect its responses in the valuation of cultural value. Those biases include free-rider problem

(Snowball, 2008, Throsby, 2001, & Cuccia, 2003 in Towse), the embedding effect, “warm

glow” hypothesis (Snowball, 2008), problems occur in the sample selection and the design of

the questionnaire (Cuccia, 2003 in Towse). Based on CVM, another type of stated preference

methods-new choice experiment has been developed. It is related to CVM, but looks at more

attributes of a cultural good than only WTP. As Mazzanti (2003) declares, CE, as a tool aimed

measuring economic values and assessing user preference concerning the multi-attribute and

15 This method is used to analyze the auction prices of artworks. It will be referred when discussing the evaluation of the visual arts.

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multi-value services as supplied by cultural goods In this sense, it deals with the issue that the

relationship between economic value and cultural value is no means a perfect one.

The methods discussed above offer some hope to measure cultural value. However, the

question whether cultural value can be captured by those methods still remains. The point is

cultural goods have a multi-dimensional nature. No matter whether the scope of this multi-

dimensionality is different among cultural economists, none of those methods can cover all

the aspects of cultural value at least in the economic evaluation models (processes). Just as

Klamer (2001) stated, “the economic perspective can be a helpful framework (cf Cordes and

Goldfarb, 1996, Frey, 2000, Throsby, 2001), but it is a limiting one, at least when we want to

make sense of the functioning of cultural goods”.

2.1.4 Conclusions

This part of the thesis addresses the value and valuation of cultural good. It presents three

different viewpoints about the relationship between economic value and cultural value when

considering the valuation of cultural good, which include: (1) cultural value can be adequately

captured within an economic theory of individual utility from a conventional economist’s

point of view. (2) A cultural good is a distinctive commodity, which means cultural value

should be distinguished from economic value, but they are still related in the sense that

cultural value can be generated and transmitted into inputs in an economic valuation process

being measured. (3) A cultural good is no commodity and cultural value is entirely

differentiated from economic value. It also dealt with the measurements of cultural value with

a focus on economic valuation methods. Although those methods provide certain prospect of

measurement of aspect of cultural value, they cannot cover all aspects of multi-dimensional

nature of cultural value. The discussion on the value and valuation of cultural goods provide

us a theoretical underpinning to explore the value and valuation of (visual) art. In the next

parts of the thesis, it will examine how this theory has been adopted by cultural economists

when they consider the value and valuation of (visual) art on the art market.

16

2.2 Economic Value of Art

2.2.1 Introduction

After a review on the theory of the value and valuation of cultural good, now we turn to its

application to a specific cultural case (phenomenon) – visual art16. The value of art has in fact

attracted the attention of economists, especially those active in the field of cultural

economics17, for a considerable number of years. One of the important reasons for their

interest has been driven by the question whether art is a good investment. Since the end of

World War II the auction prices of artworks have in general been increasing rapidly.

Especially in the period of 1980 to 1988, the art market boomed with many breakthroughs of

art prices at art auctions. In April 1987 van Gogh’s “Sunflowers” was sold at Christie’s

London for $39 million. This record had been surpassed 7 months later by van Gogh’s

“Irises”, sold by Sotheby’s New York for $53.9 million. And this last painting had yielded a

real rate of return of about 12 percent per year when comparing the sold price with its bought-

in price in 1947.18 The rapid growth of art prices and those high profits gained from art,

exaggerated by the media, have made people believed that artworks, especially master pieces,

can be a good investment in comparison to stocks or bonds. However, the dramatic downfall

of art prices after 1989 rejected this simple prediction.

In order to assess whether art outperforms other alternative forms of investments, a great deal

of literatures have been devoted to the analysis of art prices and its rate of return.19 In this

respect, economic value of art has been the center of concern in the value study of art. And

economic valuation of art has been the main method to explore the price formation of the

work of art. Even though cultural value of art has never been neglected in their analysis. This

can in general be reflected on three points that most of them have reached a consensus on:

(1) Artworks are extraordinary goods20. (See for example, Stein, 1977, & Throsby, 1994 &

Louis-André Gérard-Varet, 1995) The distinctions between artworks and all other goods lie

on a set of attributes, and some of them strongly show us the elements of cultural value. They 16 For the definition of visual art, it can be found in the previous part of the thesis. Since art is often a synonym for visual art, so we keep it simple and use art in the thesis. 17 Such as Anderson, Stein, Frey and Baumol. 18 See Frey & Pommerehne (1989: 396). 19 The literatures will be addressed later in the thesis. 20 Besides “economic goods”, they are also called “commodities” or “ art objects”. In the early studies, such as Stein (1977), “economic goods” were a prevalent form of address. And nowadays, “commodities” and “art objects” have been widely addressed. Such as Throsby (1994) & Frey & Eichenberger (1995).

17

are extremely heterogeneous. Since every piece of artwork is created by individual, and every

unit of out put is differentiated from every other unit of output, even an artist create two same

artworks, they are still different from each other. In this respect, artworks can be copied but

not reproduced. This uniqueness characteristic reflects authenticity value of art. Likewise,

authenticity value of art also lies in its fixed supply. Especially for the works of deceased

artists, supply is nonaugmentable. Artworks provide rich consumption benefits to their

purchasers through their utilitarian characteristics as durable private goods, such as their

aesthetic benefits. Similarly, those utilitarian characteristics of artworks, specifically artworks

from part of the cultural capital of a nation or of the world can be enjoyed by public,

therefore, they have public-good characteristics. Artworks can be resold and their prices may

rise over time, so they have the characteristics of financial assets. This last characteristic has

evoked a discussion of whether art is a good investment, since over half century artworks

have often outperformed stock or bond markets. However, it will be discussed later that most

of art markets studies have found out that the rates of return of the works of art are low, and

the risk of art investments is high. And they tended to attribute the reason to the “intrinsic

value21” of art, such as aesthetic pleasure, which will raise the current price of an artwork in

the long run of the art investment.

(2) The distinctive characteristics of artworks endue the art market with distinguishing

features. In other words, the art market different from other commodity or financial markets.

(See for example, Baumol, 1986, Throsby, 1994, Louis-André Gérard-Varet, 1995, &

M.M.G. Fase, 2001) As mentioned already, art has a fixed supply characteristic. It does not

allow the transactions to be frequent on the art market. Besides, a monopoly on an artwork is

more likely in compared with other commodity, and financial markets. To economists, they

have realized that the consequence of this character of art market is that the equilibration

process will be feeble, especially when concerning the noted artworks of noted but deceased

artists, since then the elasticity of their supply are absolutely zero.22

Furthermore, “the art market is characterized by a hierarchy of submarket” (Louis-André

Gérard-Varet, 1995). Some researchers, such as Velthuis (in Towse 2003) divided the art

market into two levels: the primary market and the secondary or resale market. However,

other researchers, such as Throsby (1994) & Louis-André Gérard-Varet (1995) broke the art

market up into three levels: the primary market, the secondary market and the tertiary market.

I adapt here the three-level art market. And each level of the market has its own features

21 See Mandel (2009). It is also called psychic benefit, such as Frey & Eichenberger (1995), Baumol (2007, discussion paper series nr; 07-16). 22 See Baumol’s (1986) interesting discussion about it.

18

(Throsby, 1994 & Louis-André Gérard-Varet, 1995). At the lowest level, it is often known as

the “primary” market. This market is highly decentralized and competition is widespread.

Individual artists or would-be artists provide their artworks to galleries, local art exhibitions

and fairs, or directly to consumers. Since there are more artists and would-be artists than there

are buyers interested in acquiring their works of art, and in addition, the artists are lack of

qualification, which can verify the quality of their works. Therefore, the artists cannot exert

any supply-side power to raise prices in the primary market. (Throsby, 1994) The secondary

market is also called the dealer market. It is more concentrated on both supply and demand

sides. Works of the artists whose reputations are recognized on the market are traded. And

considerable supply-side power can be practiced by the galleries and dealers who handle most

of the sales in this market (Throsby, 1994). And those leading galleries or dealers can attract

both artists and buyers in the way of tying up the artworks of some particular artists and of

dealing with buyers as a monopolist. At the highest level, it is an international market that

consists of few auction houses in New York, London, Paris, such as Christie’s and Sotheby’s.

It is also highly concentrated on demand side, since only a restricted number of buyers,

mostly including individual wealthy collectors, museums or ‘private operation foundations’

(Louis-André Gérard-Varet, 1995: 511). Informational asymmetries are essential features of

this market in contrast with the secondary market, since in the latter markets, art galleries or

dealers make profits by having information about the willingness to pay of collectors

interested in particular artworks. (Louis-André Gérard-Varet, 1995: 511). The tertiary art

market is also considered to be the most important market, as the value of most important

works of art is established in this market. (Ashenfelter & Graddy, 2003: 763) Therefore, most

of literatures have been devoted to the analysis of the value of art on the auction market. Even

though the researchers have also noted that there are many factors that differ substantially

between the primary, second and tertiary market. Just as Ursprung and Wiermann (2008)

stated, the impact of particular factors on art prices varies across different price and quality

ranges, as well as market segments. Concerning the art prices in the primary market and

secondary market, Velthuis (2002), Sagot-Duvauroux (2003 in Towse) gave a detailed

analysis of art price formation and price determinants on the primary market. And Hutter et

al. (2007) analyzed determinants of art prices on the secondary market. Although those

factors are different, prices in these sub-markets are interrelated and interdepend on the price

level of each sub-market. For example, Hutter et al. (2007) point to the mutual influences

with regard to the price levels on the dealer and auction market. Candela and Scorcu (2001),

and Velthuis (2005) suggest that, overall, galleries and art dealers use auction prices as

benchmarks. From the distinctions of the art market discussed above, we can see that those

economists have realized that there are added qualifications for art when considering the

valuation of art on the art market. And they have tried to interpret those added qualifications

19

to the factors that affect the price of art through an economist’s eyes. The later part of the

thesis will present their viewpoints on the determinants of art prices.

(3) Consumption benefits of owning an artwork plays a significant role in people’s demand

for the artwork.23 And those benefits are notably influenced by tastes and fashions, which are

highly unpredictable, especially on the auction market. The consequence of this phenomenon

is that the determinants of art prices have changed over time. For example, Sagot-Duvauroux

(2003 in Towse) analyzed the trend of art demand over two centuries and pointed out that,

until the mid-17th century art prices depended mostly on production costs. However during the

academic period in France (from mid-17th century to the end of 19th century) the price of

artworks depended mainly on the choice of subject. And since the end of 19th century, the

relevant property was the artist’s signature. So authenticity value was the most important

determinant of art prices at that time. From this point of view, it reflects Throsby’s (1994 &

2001) the importance of cumulative tastes on the demand of art. And it fits perfectly to

Klamer’s (2001) “valorization” in the way that value may change, and people develop values

and adopt new values.

The three points addressed above are the general opinions of the economists who have been

devoting to the analysis of the value of art. And they show us that the economists have taken

account the nature of art when they were trying to quantify the value of art in the economic

evaluation process. In the coming part, the determinants of art prices will be examined with a

purpose to see how the economists interpret or quantify cultural value of art in the economic

valuation process. Enlightened by the previous studies (Sagot-Duvauroux et al., 1992,

Rengers and Velthuis, 2002, Worthington & Higgs, 2006, and Admowska, 2008), I will

follow them to analyze the determinants of art prices in three groups: artwork-, artist-specific

and external factors. In turn, I will focus on the major studies on financial returns on art

investment, namely on the tertiary market.

2.2.2 Determinants of art prices

It should be noted that the determinants of art prices analyzed in previous studies were broad

and diverse, it cannot include all their findings and it is not our purpose to examine them

either. As mentioned above, the major area of my interest is to see how the economists

interpret or quantify cultural value of art with economic valuation process. Therefore, the

23 See for example, Anderson (1974), Stein (1977), Baumol (1986) and Frey & Pommerehne (1989).

20

determinants of art prices are narrowed down to the factors that significantly reveal cultural

value of art24.

2.2.2.1 Artwork-specific features

The determinants under this group are closely related to the physical properties of the works

of art. And they are mostly analyzed in the art prices studies on the primary market25 and as

well in the studies that applied a hedonic regression model26. Although most of them are

easily observed and interpreted, some of them, for example, the effect of subject matter on art

prices, are difficult to evaluate accounting only for economic valuation method. Therefore,

interpreting them with economic valuation process requires a certain degree of subjectivity.

(Admowska, 2008)

SizeThe size of an artwork is one of the most apparent physical properties that affect art price on

the art market, especially on the primary market. It is considered to be positively correlated to

art price, since for example larger works of art cost more in terms of materials and require

more labor time from an economist’s point of view (Sagot-Duvauroux et al. 1992). However,

it has also a depressing effect27 (Anderson, 1974, Sagot-Duvauroux et al, 1992 and 2003 in

Towse), as it has been argued odd formats (extreme size) of artworks are difficult to display

in either private houses or company buildings (Frey and Pommerehne, 1989b). This point of

view reflects that the demand of art decides art prices, as least on the primary art market.

Although the positive correlation exists, Renger & Velthuis (2002) pointed out that price and

size strongly correlate only within the body of work of one artist. In other words, the size is

no help for the explanation of price differences between artists. (Renger & Velthuis, 2002).

24 Cultural value of art has been discussed in the previous part. It is mainly based on Throsby’s (1994) concept of cultural value including aesthetic value, spiritual value, social value, historic value, symbolic value, and authenticity value, since his point of view has been reflected in those art prices and investments studies, repeated again that, cultural value of art should be paid great attention, and it can be revealed through economic evaluation process. 25 See for example, Velthuis (2001, 2003b, 2005), Rengers and Velthuis (2002), Sagot-Duvauroux et al. (1992), Schönfeld and Reinstaller (2007).26 Hedonic models allow for the construction of price indexes while properly accounting for the characteristics of the product whose price is analyzed. (Sproule & Valsan, 2006)27 In other words, the price of artwork increases at a decreasing marginal rate with size. (Sagot-Duvuroux, 2003 in Towse)

21

Material, technique and supportSame as the size of artwork, those physical properties of artwork are also directly observed.

Many studies have examined their impacts on the price of art. For example, Renger &

Velthuis (2002) testified their influences on the price of visual arts on the primary market.

Sagot-Duvauroux et al (2003 in Towse) has also mentioned that their impacts on the artistic

value of artwork, so that affect the price of artwork. On average, oil paint is more expensive

and labor intensive than watercolor, and canvas more costly than paper. And furthermore,

works that are produced in edition such as silk screen prints are less costly to produce than

unique works. (Renger & Velthuis, 2002) In this respect, the importance of those factors to

the price of art attributes to its durability and superior skills required for making or executing

artworks. Furthermore, as Sproule and Valsan (2006) pointed out, those physical properties of

artwork allow a spectrum of artistic effects.

Subject Subject matter affects the prices of works of art. However, unlike the factors discussed above,

its effect on art prices is hard to measure. Since subject matters differently across various

artists, time periods, buyer types, and markets (Adamowska, 2008:26), it is difficult to

understand how art lovers or investors perceive subject matter at the aggregate level (Sproule

& Valsan, 2006). In addition, its impact on art prices is also influenced by other factors, such

as taste and fashions, expert opinions and buyer’s nationality (Adamowska, 2008:26). For

example, “Archangels” were a popular subject of art from the Middle Ages through the

Renaissance period, as people believed that the presence of angels gave them the permission

to get closed to god. However, nowadays, who can be for sure that it will be a popular subject

of art on the art market, especially on the contemporary art market. And in different countries,

domestic buyers perceive subject matter differently: maybe some subjects are popular in one

country, but they are not favored in another country. Valsan (2002) used to compare Canadian

buyers and American buyers and found out that in general Canadian buyers fancy landscapes,

in contrast, American love portraits. Therefore, subject matter is difficult to quantify. Even

though some researchers, such as Renneboog and Van Houtte (2002), Agnello (2002) and

Valsan (2002) have tried to quantify it. For example, As Valsan (2002) defined, paintings can

be subjectively divided into landscapes, portraits, still-life, and compositions. Nevertheless,

regardless of the discussion on whether the effect of subject matter on art prices can be

quantified, Sagot-Duvauroux et al. (1992) argued that subject matter might be no longer of

great importance for art price formation with reference to contemporary art. This viewpoint

can be traced back to the finding of Anderson (1974), which stated that subject matter was not

an important variable that affected the realized prices of works of art at art auctions.

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ConditionCondition is a factor closely related to the aesthetic value of art. And the general condition of

an artwork significantly affects its price, which has been proved by Singer and Lynch (1997),

who stated poor condition might result in a price reduction of up to 80 percent. However this

phenomenon does not apply to superior-quality artworks, for example, master pieces with a

poor condition have also achieved superior prices. Therefore, condition might be of

considerable importance on the primary market.

Authenticity and signatureAuthenticity presents the value of origin and novelty of an artist’s work. Since if there is any

doubt about the origin of the work of art, it will inevitably fall in value (Sagot-Duvauroux,

2003 in Towse). Therefore, it plays an important role in the price formation of the work of art.

Signature is proxy for artwork’s authenticity. As a result, it has a positive contribution to the

evaluation of the price of a work of art (Sagot-Duvauroux, 2003 in Towse, Renneboog and

Van Houtte, 2002). Furthermore, Czujack (1997) states that a visible signature on an artwork

might provide its owner with consumption and prestige benefits. However, It has been argued

that a signature effect works better in the low end of the market, namely on the primary

market, since for example Ursprung and Wiermann (2008) states that the genuineness of

superior-quality artifacts can be determined even if they are not signed. But the works without

a signature might be a risk due to the issue of fakes and forgeries (Frey & Pommerehne,

1989). Thus it requires art expertise to guarantee whether they are original. In this case, art

experts play an important role in it.

Time of creationThrough time of creation, many aspects about the work of art can be found. For example, it is

correlated with artwork’s genre and style and is also associated with the artistic period of

artists – in which the artist was active when she executed the work (Admowska, 2008). Those

aspects of artworks can reflect the price of artwork, which has been argued by Anderson

(1974). Therefore, Time of creation of artwork play significantly role in the price formation

of artwork.

2.2.2.2 Artist-related factors

As mentioned before, the art market is characterized by a hierarchy of submarkets. The

hierarchy is manifested on the supply-side power of each level of submarket, which is

23

influenced by the level of artists that being active in the submarket.28 And the level of artists

reflects mainly on their reputation in this respect, and in addition it also depends on their

fames, and achievements. Therefore, those artist-related factors have a great impact in the

price formation of the work of art. Similar as the previous group of factors, this group of

factors is usually estimated in the hedonic price function.

The Reputation of artistAmong artist-related factors, the reputation of artist seems to have the strongest impact on art

prices (Frey and Pommerehne, 1989b & Sproule & Valsan, 2006). It reveals an artistic quality

and is defined by the collective judgments of art experts, which based on many aspects, such

as artistic quality of the work of art, its innovation and originality (Admowska, 2008).

Therefore, it closely refers to Klamer’s (2001) social value and Throsby’s (2001) authenticity

value of art. In addition, it also depends on artists’ past achievements, which present in the

form of artists’ rankings. It is probably the most stable factor that affects the price formation

of art, since “while the perception of the market can change over the long-run, the ‘rating’ of

artists tends to remain relatively stable over extended periods of time” (Sproule & Valsan,

2006).

FameIn contrast with the social value of the reputation of artist, fames are likely to be social

networks. The networks are made up of art dealers’ and auction houses’ promotional

activities, as well media promotions. However, the networks are not stable as the social value,

in the sense that fame does not always go in line with artistic quality due to the factors that

affect the reputation of artist, such as negative news about artist (Admowska, 2008).

Nevertheless, it might solidify artist’s place in the history of art (Sagot-Duvauroux et al,

1992).

AchievementsAchievements, such as prizes and awards, domestic and international publications, national or

international grants and scholarships, and institutional recognitions, stand for artistic quality

of artist’s work of art. (Admowska, 2008) As Velthuis (2005) states, potential buyers usually

demand the artworks from the artists selected by experts and cultural institutions. This point

of view was confirmed by Plattner (1998), who stated that the number and importance of

28 At the lowest level, there are artists and would-be artists, who are trying to signal their abilities to the secondary market. At the secondary market, restricted number of artists whose reputation is still recognized can enter the market. At the tertiary market, the most successful artists’ or dead masters’ artworks can be transacted by few auction houses.

24

achievements is generally positively correlated with demand and, consequently, art prices.

This can be explained by “velblen effect”29 on the art market. In addition, achievements also

influence art supply, which is known as a “penetration strategy”.30 However, some

researchers, such as Bonus and Ronte (1997), argue art prices cannot rely on the number of

exhibition and prizes awarded to their artists, since it is the significance of those exhibitions

and prizes rather than the number of them that affect the market valuation of artists’ works.

2.2.2.3 External factors

There are also some external factors that are not easily observed but have a great impact on

the price formation of the work of art.

ExpertsThe indirect impact of expert’s judgment does not diminish its significant importance to the

price formation of the works of art. Experts serve and influence both the supply and demand

of art. On the supply side, experts act as a “gatekeeper31” to judge artistic quality of the works

of art and disseminate their judgments though media and publications. On the demand side,

experts’ judgments serve to guide buyers to the works of art with a good artistic quality and

with right tastes and trends. As Plattner (1998) states, Experts’ judgments serve as reference

points for buyers, who may find it hard to assess artistic quality and, in order to minimize the

risk of acquiring poor –quality art, seek reassurance of their aesthetic valuations. Such a view

can in fact be traced back to Fey & Pommerehne (1989: 396), who recognized that up to

World War II, expert knowledge of paintings could have helped to achieve a higher return

than someone who picked auctioned paintings simply by chance. In addition, it is also an

economic way for buyers to find the works of art through experts, since it saves information

and search costs (Sagot-Duvauroux, 2003). Nevertheless, expert’s knowledge cannot predict

tastes and fashions. For example, who might think that the works of art from Vincent van

Gogh would be such a masterpiece at the time when he was a poor artist? Another example is

Jacques Louis David whose works of art achieved huge prices at the beginning of last century

and then were totally forgotten.

29 “Veblen effect” means that prices are used by collectors as an indicator of quality. See Renger & Velthuis (2002). 30 “Penetration strategy” means art dealers and artists start pricing low and only increase the price level when a critical level of sales has been established. 31 See Cave’s (2003) “contract between art and commerce”.

25

Tastes and fashionsAs noted in the beginning of this section, tastes and fashions are probably the mostly decisive

but unpredictable factors on the price formation of the work of art, especially at art auctions.

From an economic point of view (e.g., Grampp, 1989), due to changing preferences and fads,

a large part o f artistic output becomes obsolete over time. However, cultural economists have

a different opinion. As Throsby (1994: 3) considers, taste needs to be accumulated through

past consumptions. To be more precise, people acquire experience, understanding and other

human capital attributes associated with the arts through the consumption of art. And those

knowledge, experience and attributes might cause a shift in their tastes. Therefore, Throsby

(1994) believes that tastes for the arts seem to be moved by systematic phenomena, such that

the aggregate behavior of consumers and of artists can be predicted with economic theory.

Such a viewpoint has been widely accepted by economists, especially those cultural

economists on the auction market. For example, Frey & Pommerehne (1989) states that it

may be possible to systematically make profits for those with inside knowledge, which is not

available to the public, and which refers to the future behavior of all other potential buyers

and sellers. However, In general, either a shift in tastes or a fall in fashion would in general

decrease the market price of the work of art. And on the other hand, a favorable shift in tastes

or an emerging new trend or fashion would also bring a significant increase in prices of

certain market segments.

State of economy

Art prices are influenced by the state of economy either at the national and global level. Art is

a luxurious good and it is purchased only when other, more basic needs are satisfied, and is

one of the first commodities to be sold during economic downturns, especially with regard to

lower-quality artworks (Mamarbachi et al., 2008). Therefore, art prices slump in the period of

economy recession and also prosper with the growth of economy. However, As Sagot-

Durvauroux et al. (1992) declared, the effect of state of economy on art prices is not always

easy to forecast. Although economy growth can stimulate demand and supply of art as a result

of buyers’ increasing wealth and sellers’ expectations of future growing, it may also reduce

demand for art due to greater attractiveness of some alternative forms of investments (Frey &

Pommerehne, 1989b). As Frey & Pommerehne (1989) stated, a fall in inflation should make

investments in financial assets more attractive compared with paintings from the financial

point of view.

Buyers’ wealth

The state of economy refers to buyers’ wealth, which determines their demand for art. As a

result, it affects art prices. However, as Adamowska (2008) considered, the increasing

26

prosperity of potential buyers can affect price of art in the higher end of the art market to a

greater extent, in compared with other low-end market segments.

2.2.3 Financial returns of art investment

As noted already, whether art is a good investment is the question that has been attracting the

attention of economists for a considerable number of years. In order to answer it, a great deal

of literatures has been devoted to investigate rates of return of investment in the works of art.

And further those rates of return have been compared with the rates of return of other

alternative investments, specifically stocks and bonds. The major of those estimates found

that in a long run, the average monetary rates of return to investment in the secondary and

tertiary art markets were lower, and the financial risk to it was higher than those yield by

comparable financial assets. For example, Anderson (1974) examined paintings as an

investment over the period 1780 to 1970 and found that the long run rate of return on painting

was half of what had been measured for stocks and following adjustment for risk, paintings

were not very attractive investment unless one also includes the consumption value of art.

Stein’s (1977) study constructed annual price indices for United States and Britain for the

years 1946-68 and estimated the monetary appreciation of paintings. His result showed us that

the nominal appreciation of paintings at 10.5 percent per year. In contrast with 14.3 percent

per year of the stock market, he concluded that investment in painting was not particularly

lucrative, and any superior performance of paintings attributed entirely to the viewing

pleasure they provided, not captured by speculators.

Likewise, Baumol (1986) estimated the average real rate of paintings for the years over the

last three centuries (1650 – 1960) at 0.55% per year, which was 2.5% lower than a real annual

rate of return on safe British government securities over the same period. And he also

concluded that it was impossible to “select with any degree of reliability the combination of

purchase dates and art works that will produce a rate of return exceeding the opportunity

cost of their investment” (Baumol, 1986: 14). Finally, Frey & Pommerehne’s (1989) study

attempted to overcome the limitations of the three studies above by covering longer period

(350 years), including more countries, such as France and Germany, taking into account the

transaction costs, examining the rates of return in paintings between the periods before and

after World War II. And their findings confirmed that the real rate of return of 1.6 percent per

year in paintings between 1950-1987 was higher than the real rate of return between 1635-

1949, even though this rate was lower than the real rate of return of 2.4 percent per year on

financial investments in the U.K., the U.S., Germany, or France over that period. Therefore,

they concluded that the monetary rate of return in paintings was low and the financial risk

high.

27

Nevertheless, there were some opposition voices pointing to the general pattern. For instance,

Goetzmann (1993) was the first researcher that was optimistic to the financial returns of art

investment. Although he noted that in the long run, bond returns exceeded the return to art

investment, he found that paintings prices grew at a rate of 6.2 percent, while stock prices

grew at a rate of 2.6 percent since 1850 to 1986. Therefore, he concluded that in certain

period art returns exceeded the capital appreciation of stocks and the returns to bonds. While

even though he still realized that art investment was accompanied by high volatility, and was

strong positive correlated to other assets, especially stocks. Therefore, he concluded that art

was only attractive to the nearly risk-neutral investor. Similarly, Buelens & Ginsburgh (1993)

reconstructed Baumol’s (1986) database by distinguishing ‘schools’ and dividing the 1700-

1961 time span into four period. Their findings demonstrated that Baumol’s pessimistic

conclusion of lower returns on paintings than bonds was due to the low prices of English

paintings and to the years between 1914 and 1950, in the period of recession on the art

market. In addition, they found that by considering sub periods and schools, painting might

offer large returns in a long run. Therefore, they concluded “there are segments in the market

for which returns are significantly higher than returns on bonds and stocks, during long

periods of time (20 to 40 years); since tastes do change slowly” (Buelens & Ginsburgh,

1993).

Regardless of the controversial question of whether the average monetary rates of return to

investment in the secondary and tertiary art markets were lower or higher than those yield by

comparable financial assets, many researchers have realized that there are problems common

to every estimate on financial returns on art investment.

In general, there are four major problems, which have already been widely addressed

in some of those studies.32 (1) Data problem. This problem is due to the fixed supply and

heterogeneity of the work of art. As mentioned already, it does not allow a frequent

transaction, and in addition, it enables a monopoly on the work of art more likely. Therefore,

the art market cannot offer the continuous data or even the continuous transaction that would

be required for a systematic analysis of rates of return on the works of art. (Baumol, 1986: 12)

In most cases, those studies rely on auction data, such as Reitlinger data (1961, 1963, 1971)

and Mayer data (1971-1987). There are several selection biases in those data (Goetzmann,

1993: 1371): first, auction data are drawn from auction records subjectively. Therefore, they

may disregard some important sales that can influence price movements. Second, auction data

might tend to bias upwards the rates of return of auctioned works of art because auction

houses or owners of works of art have only interested in high turnovers. (Goetzmann, 1993: 32 Frey & Eichenberger (1995) have in general summarized those problems.

28

1371 & Frey & Pommerehne, 1989: 402). (2) Transaction cost problem. Most of the studies

disregarded high transaction costs, namely high auction fees. However, auction fees are

important to the estimates on rates of return of the works of art, since they amount to at least

10% percent of the hammer price and in addition, they vary for example between countries,

period, and auction houses. (3) Taxation. Although the auction fees are high, which range

from about 10 to 30 percent when buying and selling, no study seriously considered the taxed

due when transacting and holding a work of art (Frey & Eichenberger (1995). Probably it is

also impossible to calculate rates of return on art net of taxation, since tax regulations various

between different countries and periods. (4) Comparison to financial assets problem. For

example, the comparisons were mainly focused in UK and US and neglect other countries.

And furthermore, they also neglected other alternative investment markets, which might also

good substitutes to art investments. In this respect, as Frey & Eichenberger (1995: 212)

concluded, “a general shortcoming of many returns studies is their undue focus on

mechanistic calculations and their disregard of the underlying behavior of the various

actors”.

Despite of this, as mentioned at the beginning, all those returns studies realized that the non-

pecuniary return of owning an artwork play a significant role in people’s demand for the

artwork and thus in financial returns on art investment. For example, as Anderson (1974)

stated, “paintings are not very attractive investments unless one also includes the

consumption value of art”. Stein (1977) also declared that “any superior performance

derivable from paintings can be attributed entirely to the viewing pleasure they provide”.

Finally, as Baumol (1986) claimed, it may be a very rational choice for those who derive a

high rate of return in the form of aesthetic pleasure to invest in art.

2.2.4 Conclusions

This part of the thesis turned from the art value theory to its application-the value of art. It has

attracted the attention of economists, especially those active in the field of cultural economics

for a considerable number of years, since art, as a cultural good has often brought its owner

surprising monetary appreciation. As a result, art prices, as economic value of art have been

the center of concern in their studies. Even though cultural value of art has never been

neglected by them. This can be reflected on three points that most of them have reached a

consensus on: (1) Artworks are extraordinary economic goods because of their distinctive

attributes, such as their fixed supply, extremely heterogeneous, public-good characteristics,

and characteristics of financial asset. (2) The art market has distinctive features. For example,

29

it is a market with non-frequent transactions and with a bigger chance of monopoly. (3)

Consumption benefits of owning an artwork plays a significant role in people’s demand for

the artwork.

Furthermore, the determinants of art prices analyzed in their studies have been examined.

Since the main purpose of examining them was to see how the economists interpret or

quantify cultural value of art in the economic valuation process, therefore, the determinants

were mainly the factors that significantly reveal cultural value of art.

Through those determinants of art prices analyzed in their studies, it was found that those

economists have realized the great importance of cultural value of art, such as aesthetic value

(such as size, material, technique, and support), cultural and social value (e.g. expert, fame,

achievements, state of economy and buyers’ wealth), historical value (e.g. Museum’s demand

for art), authenticity value (e.g. authenticity and signature) to the price formation of the work

of art. And they have been spending their great effort to reveal those cultural values in the

economic evaluation process, however, some factors, such as subject, tastes and fashions

were impossible to aggregate in the economic terms. Therefore, interpreting them with

economic valuation process requires a certain degree of subjectivity. (Admowska, 2008)

Finally, we turned to financial returns on art investment, another issue of economic value of

art. The major of the returns studies found that in a long run, the average monetary rates of

return to investment in the secondary and tertiary art markets were lower, and the financial

risk to it was higher than those yield by comparable financial assets, although there were

some opposition voices pointing to the general pattern. And then it discussed the four

problems exist in the returns studies, which are: data problems, transaction cost problem,

taxation problem, and comparison to financial assets problem. This discussion led us to

realize that the general shortcoming of many return studies is their undue focus on

mechanistic calculations, which cannot entirely indicate economic value of the works of art.

Therefore, it should pay attention on the underlying behavior of the various actors in the art

market. Despite the disagreement on the rate of returns on art investment and those problems

in the returns studies exist, all those returns studies realized that the non-pecuniary return of

owning an artwork play a significant role in people’s demand for the artwork and thus in

financial returns on art investment.

30

2.3 Cultural Value of Art

2.3.1 Introduction

The previous discussion reveals that art prices indicate a part of the value of art, and its

financial returns are not the entire flow that art can generate as an investment. In other words,

economic value of art cannot encompass complete value of art. It seems that the value of art

will not be completely understood unless cultural value of art is explicated. We turn now to

cultural value of art and discuss two major questions: (1) what are cultural value of art and the

psychic return of art? (2) And how do we evaluate the psychic return of art? As noted already,

economic value of art has been the center of concern in the previous studies. As a result, scant

studies focus on cultural value of art and the psychic return of art. Despite of this, those

studies on determinants of art prices and financial returns of art touched upon cultural value

of art and the psychic return of art. This part will first discuss what are cultural value of art

and the psychic return of art based on those previous studies, and then it will focus on how

they evaluate the psychic return and the limitations of those methods.

2.3.2 What is cultural value of art and the psychic return of art?

As noted in the last part, the works of art, as durable consumption goods provide present and

future consumption benefits to their owners and public. And the works of art, as financial

assets can be resold and provide financial services to their purchaser thanks to their durable

consumption benefits. In this respect, the works of art are subject to Throsby’s (2001)

tangible cultural capital. As mentioned already, tangible cultural capital exits as a given point

as a capital stock derives economic value from its cultural value, and this stock gives rise to a

flow of capital service which may enter final consumption directly, or which may be

combined with other inputs to produce goods and services having both economic and cultural

value. Therefore, the works of art generate cultural value both at a given point as a capital

stock and in the further as a flow of capital service.

When reviewing those previous studies, the cultural services provided by the works of art and

their consumption value and the flow of those services have been variously defined and

explained. For example, Anderson (1974) pointed out that paintings provide consumption

services and those services fall into two broad categories: decorative and aesthetic-prestige

services. Both services provide the consumption value of art. The value provided by

decorative services depends on size, condition, and subject matter of the works of art; and the

31

value supported by aesthetic-prestige services is based upon the attribution, the artistic merit

of the work, and history of previous ownership. (Anderson, 1974) Stein (1977) considered

viewing services of art as the cultural services and the nonpecuniary return as the flow

derived from viewing services of the works of art. Similarly, Baumol (1986) sees the

nonpecuniary return of the work of art is in the form of aesthetic pleasure. Frey &

Pommerehne (1989) believed that the consumption benefits of owning a picture might consist

in pure aesthetic pleasure or in the prestige gained and the owner derives a psychic benefit

from looking at the works of art. Goetzmann (1993) described the flow as aesthetic dividend

flow. Particularly enlightening is a reading of “On pricing the priceless: Comments on the

economics of the visual art market” by Louis-André Gérard-Varet (1995). The cultural

economist pointed out that the works of art provide immediate consumption services through

their aesthetic qualities, and possible through their social attributes and they can also be

resold, providing financial services through their potential for price appreciation. What the

cultural economist meant by “immediate consumption services” and “potential for price

appreciation” was that the durable works of art provide present and future satisfaction (Louis-

André Gérard-Varet, 1995). In this respect, his opinion was similar to Throsby’s idea that the

works of art generate cultural value both at a given point as a capital stock and in the further

as a flow of capital service. Finally, as Mandel (2009) stated, the consumption value of the

work of art is the pleasure that art owners derive not only from its intrinsic value, such as

aesthetic pleasure or collecting enjoyment, but also from additional enjoyment from the signal

of wealth that owning a masterpiece transmits. All in all, the effort to define the cultural

services provided by the works of art and the consumption value and the flow of those

services within the context of economic theory remains an open and challenging issue.

However, up to now, those studies only suggest that the cultural services are mainly viewing

services, such as decorative and aesthetic-prestige services, and social services, such as

collecting function and the signal of wealth. In this respect, for better or worse, cultural value

of the work of art is the consumption value provided by those services at a given point (e.g.,

the date being sold), and plus non-pecuniary or psychic return as a flow of those services if

the work of art is reevaluated (mostly resold) within the context of economic theory. And the

consumption value and non-pecuniary or psychic return in this case include aesthetic

pleasure, prestige gained (e.g., the signal of wealth) decorative value, and enjoyment from

collecting.

2.3.3 How to evaluate cultural value of art?

32

The complex composition and movement of cultural value of the work of art make it difficult

for those economists and cultural economists to evaluate this value. As noted in the last part,

the studies on the determinants of art prices have provided us important evidences on how to

evaluate cultural value of the work of art by quantifying those cultural characteristics of the

work of art, such as size, material, technique, supports, subject and etc.33 And in addition, as

mentioned already, since one of the important reasons for their interest has been driven by the

question whether art is a good investment, and in addition, the value of most important works

of art is established by public auction (Ashenfelter & Graddy, 2003), a great deal of literature

is devoted to investigate rates of return of investment in the works of art. And the major of

those estimates found that in a long run, the average monetary rates of return to investment in

the art markets, in particular, in auction markets were lower, and the main reason why

individuals may rationally invest in art is the owner sufficiently derives high psychic return

from it.34 Therefore, the psychic return of the works of art, in particular in auction markets,

has been attracting great attention of those economists. The most important issues are: what is

the psychic return of art? And how to measure the psychic return? The previous discussion

has shed some light on the definition of the psychic return. By and large, the psychic return of

art is a flow of those services, which provide for example aesthetic pleasure, prestige gained

(e.g., the signal of wealth), decorative value and enjoyment from collecting art. Concerning

how to measure it, there are several significant proposals within the context of economic

theory:

2.3.3.1 The finance-theoretic approaches

A residual approachThe first finance-theoretic framework has been employed to measure the psychic return is to

calculate the differentials between financial returns of art and the returns of other financial

investment. This approach is based on the major finding of those return studies that the

financial returns on art investments are lower than other financial investment. Anderson

(1974), Stein (1977), Baumol (1986 & 2007), and Throsby (1994) are the researchers who

have supported this approach. Anderson (1974) found that the rate of return on paintings was

about half of the rate for common stocks in the period 1780 to 1970, and further stated that

the differences in return between common stocks and paintings maybe be explained by the

substantial consumption value of art besides differences in risk and liquidity. Stein (1977)

calculated the financial returns on the paintings auctioned in the US and the UK in the period

33 Those factors have been explicated in the second part of the thesis – Economic value of art. 34 It should mention that Mandel (2009) has given a good demonstration for it in his “Art as an Investment and Conspicuous consumption good”.

33

1946 to 1968 and found that the financial rate of returns on the paintings was only 1.6 per

cent per year, which was 9.9 per cent lower than stocks and bonds. Therefore, he concluded

only if nonpecuniary viewing pleasure were valued above 11.5 percent (9.9 + 1.6 = 11.5),

then paintings would be an efficient investment. Baumol (1986) calculated the financial

returns in the art market in the period 1650 to 1960 and found that the average annual returns

on art investment was 1.5 percent lower than the annual returns of stocks and bonds, and he

concluded that the difference (1.5 per cent) might be attributed to the nonpecuniary returns (in

the form of aesthetic pleasure) of art. Similarly, Throsby (1994) demonstrated that “if those

who buy art for nonpecuniary reasons such as aesthetic pleasure, status, or prestige value

also hold stocks and bonds, there cannot be equilibrium unless the difference in return,

adjusted for risk, equals the value of the nonpecuniary benefits provided by the art” (Throsby,

1994:6). And recently Baumol (2007) in his paper “Returns in Cost Diseased Markets with

Psychic Benefits: Two Apparently Conflicting Models for Equilibrium” illustrated that

considering the classical equilibrium proposition for the prices, if ownership of a painting

provides psychic rewards, the market cannot be in equilibrium without a lower financial

reward for the investment in painting. The point is that the lower financial reward to

investment in an item whose payoff is partly psychic will raise the current price of that item.

(Baumol, 2007) Therefore, Baumol (2007) concluded that for if the payment to investors is to

be the same, then the shortfall in the financial return to investment in painting vis-à-vis that

on stocks or bonds, with their limited aesthetic yield, must in a perfect market equilibrium be

equal in value to the holder of the aesthetic benefit the ownership provides.

The capital asset pricing model (CAPM) The second finance-theoretic framework is based on finance theory, to quantify the psychic

returns to art investments with the capital asset pricing model (CAPM35). (Atukeren & Seçkin,

2007) For example, Stein (1977) extended the simple form of CAPM developed by Sharpe

(1963, 1964) and Lintner (1965a, 1965b) and was the first one to use the CAPM’s alpha

parameter as a measure of the returns from the viewing services of a work of art. Likewise,

Chanel et al. (1994) and Hodgson and Vorkink (2004) also measured the psychic returns on

art investment with alpha parameter of the CAPM. And lately, Atukeren & Seçkin (2007)

summarized those studies and concluded that the alpha terms from those studies were found

to be statistically not different from zero, therefore, the psychic returns should have balanced

the (transaction) costs involved in investing in the art market. And they calculated the round

trip transaction costs amount to 28 per cent of the hammer price on auction markets. As a

35 As Atukeren & Seçkin (2007) explain, the CAPM examines the risk-return relationship between a certain asset and a market portfolio given the return on a risk-free asset and there are various versions of the CAPM.

34

result, they concluded that the value of the non-pecuniary aspects of investment in artworks

should then be 28 per cent plus any other insurance and maintenance costs.

2.3.3.2 Willingness-to-pay-based approaches36

Frey & Eichenberger (1995) pointed out that the return from owning art does not only consist

in price rises but also in the psychic return. And they analyzed the determinants affecting the

marginal choice between two extreme types of actors, ‘pure collectors’ and ‘pure

speculators’, with the respective consequences for financial returns. Those determinants are

(1) change in risk, (2) change in cost, (3) unexpected change in taxes, (4) unexpected change

in regulations, and (5) change in genres and tastes. Based on those determinants, Frey &

Eichenberger (1995) declared that the more pure collectors tend to dominate the art market,

the higher the psychic benefits in equilibrium are, and the lower the financial returns for the

works of art.

However, although this model describes the behavior of two types of actors in the art market

and relates this to the determinations of the psychic returns, the model rests upon an

equilibrium proposition with a “no-arbitrage” condition and it is hard to implement since the

true motives of the buyers of artworks cannot be identified and qualified, as a result, this

model to estimate the psychic returns of art is not applicable. (Atukeren & Seçkin.2007)

“Rental price” and “Willingness-to-pay-based” approachesRealized the constraints of this model, Frey & Eichenberger (1995) proposed three more

direct approaches to measure the psychic returns of art: (1) The consumption benefits of

viewing art can be revealed in the rental fees for art objects.37 The basic assumption for this

approach is that a market for renting the works of art reveals ‘pure’ psychic benefits. When

people rent an art object, then the art object will provide people only its cultural value. The

main reason is that renting an art object is different from buying or owing an art object: the art

object that a people rents does not belong to him or her, so that he or she cannot resell it for a

profit. In this sense, the art object for rent is a pure consumption good, which only provides

people the cultural value of art. And renting an art object is a process of experiencing the

cultural value of art. Through this process, people can gain the psychic benefit (return) of art.

However, at the time that Frey & Eichenberger (1995) came out with this proposal, a market

for renting the works of art scarcely existed. Until Atukeren & Seçkin (2007) made use of the

prices from a Canadian fine art company that offers art rental and leasing services and

36 See Atukeren & Seçkin (2007)37 Stein (1977), Graeser, (1993) have also suggested that the rental price of paintings might provide a proxy for the psychic or non-pecuniary returns from investing in an art object.

35

estimate the psychic returns under the “rental price” approach at 28 per cent of the value of

the work of art per year. This estimate of psychic return matched with the estimate of psychic

return captured in the CAPM. Therefore, it seems that this approach is likely a promising one.

(2) The psychic returns of art can be measured with the marginal willingness to pay for

viewing art in museums. And (3) the psychic benefits from consuming art can be revealed

with the prices paid for (near-perfect) copies of originals.

Comparing those three direct approaches, examining the psychic return of art on the art rental

market seems to be a promising one. In addition to the empirical evidence from Atukeren &

Seçkin’s (2007) findings, there are several good reasons that the art rental market can better

reveal the psychic return of art. First, in contrast with viewing art in museums, people can

take the art object that they rent to their home and set it anywhere that they like. In other

words, although they do not own the art object that they rent, they have autonomy to dispose

it. In this respect, people can view (experience) the art object in the way that they am willing

to. In addition, people can decide the period that they are willing to rent an art object. So

compared with the limited time spent in museums, the experience (view) time is dependent on

people’s will. Since the psychic return of art is derived from people’s experience of it,

therefore, the art rental market can fully allow people to obtain the psychic return from the art

object that they rent. Second, Compared with the prices paid for copies of originals, the

advantage of art rental is that the works of art available to rent are all originals. In this respect,

it reserves the authenticity value of art, which is an important cultural value of art. Therefore,

on the art rental market, the psychic return of art is more completed than the psychic return of

art from the copies of original works of art. All in all, examining the psychic return of art on

the art rental market is a constructive and promising proposal.

2.3.4 Limitations of those approaches

Several limitations of those approaches need to be address. As for the residual approach, the

criticism lies on the fact that this approach rests on the assumption that the financial returns

on art investment are lower than those of stocks and bonds (Atukeren & Seçkin, 2007).

However, as noted in the last part of the thesis, that is not always the case.38 The point is the

works of art, such as paintings might yield both positive psychic returns and higher financial

returns than other investment, in such case, higher return on the works of art should not

represent any psychic return (Atukeren & Seçkin, 2007).

38 Referring back to the section “Financial returns of art investment”.

36

As for the CAPM approach, its problems are subject to the problems common to every

estimate on financial returns of art investment, which have been explicated39.

As for the “rental price” and “willingness-to-pay-based” approaches, as noted already, the

problems are that the price cannot indicate consumer surplus, and willingness-to-pay is not an

adequate or appropriate indicator of cultural value due to the reasons40 that Throsby (2001)

pointed out.

2.3.5 Conclusion

This part of the thesis explored cultural value of art and the psychic return of art. Although

scant studies focused on cultural value of art and the psychic return of art (Frey &

Eichenberger, 1995), those studies on determinants of art prices and financial returns of art

have touched upon them. Based on those studies, we defined that cultural value of the work of

art is the consumption value provided by those services (viewing services, such as decorative

and aesthetic-prestige services, and social services, such as collecting function and the signal

of wealth) at a given point (e.g., the date being sold), and plus non-pecuniary or psychic

return as a flow of those services if the work of art is reevaluated (mostly resold) within the

context of economic theory. In this respect, the psychic return of art is a flow of those

services, which provide for example aesthetic pleasure, prestige gained (e.g., the signal of

wealth), decorative value and enjoyment from collecting art.

After that, we examined the approaches of measuring the psychic return of art from the

previous studies. In general, those approaches can be divided into two categories: the finance-

theoretic approaches and willingness-to-pay-based approaches. The finance-theoretic

approaches include “A residual approach” and “The capital asset pricing model (CAPM)

approach”. A residual approach is to calculate the differentials between financial returns of art

and the returns of other financial investment. Since this approach rests on the assumption that

the financial returns on art investment are lower than those of stocks and bond, however, the

previous rates of return studies indicated this assumption is not always valid. Therefore, the

limitations of this approach are that it depends on the assumption, which is not always valid,

and it measures the psychic return of art in particular at auction markets. The CAPM

approach is to quantify the psychic returns to art investments with the CAPM. Although some

empirical researches have examined the psychic return of art with this approach, its problems

are subject to the problems common to every estimate on financial returns of art investment.

Willingness-to-pay-based approaches consist of several methods. Frey & Eichenberger (1995)

39 See page 28. 40 See page 11

37

proposed a model to describe the behavior of two types of actors in the art market and related

this to the determinations of the psychic return of art. However, as Atukeren & Seçkin (2007)

pointed out that since the true motives of the buyers of artworks cannot be identified and

qualified, as a result, this model to estimate the psychic return of art is not applicable. Frey &

Eichenberger (1995) realized the difficulties to apply this model and suggested three more

direct approaches to measure the psychic return of art, which are: (1) The consumption

benefits of viewing art can be revealed in the rental fees for art objects. (2) The psychic return

of art can be measured with the marginal willingness-to-pay for viewing art in museums. (3)

The psychic benefits from consuming art can be revealed with the prices paid for (near-

perfect) copies of originals. However, the problems of those approached are that the price

cannot indicate consumer surplus, and willingness-to-pay is not an adequate or appropriate

indicator of cultural value of art. Therefore, in general, “the economic perspective can be a

helpful framework (cf Cordes and Goldfarb, 1996, Frey, 2000, Throsby, 2000), but it is a

limiting one, at least when we want to make sense of the functioning of cultural goods”

(Klamer, 2001).

All in all, there is no an economic approach of measuring cultural value of art can unfold all

aspects of the functioning of them. Even though those approaches can be helpful frameworks

of examining cultural value of the works of art, in particular the psychic returns of the works

of art. The convincing reasons for it are that (1) the works of art, such as paintings, pieces of

sculpture and photographs have been traded on markets for a long time, and (2) especially

recently arts become a significant area of economic activity, in addition, (3) the aesthetic

judgments on the works of art are mostly made in the markets. (Louis-André Gérard-Varet,

1995: 510) Consequently, those attempts within the context of economic theory can provide a

meaningful contribution to the art market. However, measuring cultural value of art with

those approaches also remains an open and challenging issue to us.

Examining cultural value of art on the art rental market seems to be a promising one. For that

the research of Atukeren & Seçkin (2007) has provided empirical evidence. And besides,

there are several good reasons41 that the art rental market can better reveal cultural value of

art. In other words, the art rental market can enable us to unfold the aspects of cultural value

of art to a larger extent than other approaches. In this respect, we would like to apply this

approach to examine cultural value of art. However, the limitation of this approach is that

“rental price” cannot indicate consumer surplus, as a result, people’s cultural value from

renting a piece of art object might be overestimated or underestimated. Therefore, our

proposal is to examine people’s cultural value from renting a piece of art object with their 41 See page 36

38

willingness-to-pay for renting it from the demand side instead of looking at the rental fees

from the supply side. Although Throsby (2001) has discussed that willingness-to-pay is not

an adequate or appropriate indicator of cultural value, the art rental market is a specific art

market: it has been argued that this market only provides people the psychic returns of the

works of art. In this sense, we suppose that this is an art market for “pure art lovers” rather

than for any speculator. Since we suppose that pure art lovers compared to ordinary art

consumers have more information and knowledge about the works of art, and in addition,

they appreciate arts for their own sake, so that the free-riding problem might not occur.

Therefore, the art rental market can to certain extent prevent those problems when

considering WTP as an indicator of cultural value of art.

So the aims of our empirical researches are to examine to whether we can measure cultural

value of art with people’s WTP for renting it on the art rental market, and to investigate what

are the difficulties of measuring cultural value of art on the art rental market. We will

demonstrate this through a case study-the Dutch art rental market. Since last decade, art lease

as a new way of art consumption became prevalent in the Netherlands. By now, an art rental

market has been well established: there are around 95 art rental organizations in the

Netherlands (Drem, in Kunst en Cultuure, 05-03-2009). The prosperity of the Dutch art rental

market offers an avenue to implement our research. The next part deals with the specific case-

the Dutch art rental market. It addresses the background information of art lease in the

Netherlands on three main issues: (1) History of art lease in the Netherlands. (2) How does art

lease work in the Netherlands? (3) The features of art lease.

39

3. Background Information-Art lease in the Netherlands

3.1 History of art lease in the Netherlands

In the Netherlands the idea of art leasing came out from a Dutch artist “Pieter Kooista” in

1955. (Drem, on “Info.nu” 05-03-2009) When he was attempting to promote his and his

colleges’ artworks to the people of this nation, he realized that not everyone could promise

himself or herself to the arts (Drem, on “Info.nu” 05-03-2009). The poverty after World War

II was the main obstacle for the art lovers in this nation to approach the arts. Therefore,

Kooista established an art leasing system, which on one hand offers artists opportunities to get

touch with art lovers with their artworks; on the other hand, enables art lovers to afford to

enjoy art. Although it was a good idea, art lease was not a common phenomenon until the 80s

(Drem, in Kunst en Cultuure, 05-03-2009). Since then, it became popular and has been

accepted by more and more people. And nowadays, it is very usual to find an art organization,

such as gallery or museum, which leases out art objects in the western world, especially in the

big cities of the developed countries, such as United States, United Kingdom and the

Netherlands. Although the Netherlands is a small country, it is one of the pioneers in the

realm of art lease around the world. Many galleries and museums lease out art objects in this

country. For example, Stichting Beeldende Kunst (SBK) Amsterdam is the biggest art-leasing

center that encompasses 55.000 collections in its inventory (Drem, in Kunst en Cultuure, 05-

03-2009). Under the title “Centrum Beeldende Kunst (CBK)”, many art galleries were

established around the country, such as CBK Amsterdam, CBK Groningen, and CBK

Rotterdam and they are also leasing out artworks. Furthermore, the “Federatie

Kunstbemiddeling (FK)” was established as an association of various titles of art-leasing

organizations, such as CBK, Artotheek (a title of art-leasing organization), SBK, and

Kunstuitleen (a title of art-leasing organization) and it assists its members to approach their

consumers in the Netherlands. After 50 years development, the Netherlands has structured a

certain scale of art-leasing activities.

3.2 How does art lease work in the Netherlands?

With the rich experiences in the field of art lease, the Netherlands has built up a sophisticated

art-leasing system. Although there are various art-rental organizations under different titles,

such as CBK, SBK, they all lease out artworks in a consistent art-leasing system by and large.

40

Generally speaking, the art-rental organizations lease out artworks to both organizations (both

non-profit and profit organizations) and individuals. As a renter, both organizations and

individuals are required to sign up a rental contract and under each contract there is a tariff,

namely a rental fee, that must be paid monthly by the renters. The rental fee of an artwork is

corresponding to its price: the more expensive the artwork is, the more expensive the rental

fee is. However, compared to individuals, the rental fee for organizations is more expensive.

Besides, renting artworks has a broader meaning for organizations than for individuals since

organizations can create a positive working atmosphere for their employees with the rental

artworks and can also use the rental artworks to build up their images for their customers or

partners. On the contrary, individuals consider the rental artworks as a private good rather

than a public good and they are looking for the pleasure and satisfaction from the rental

artworks.

There are mainly two kinds of contracts for both organizations and individuals: one kind is

“Huur (Rental)” contract; another is “Huur & Spaar (Rental & Save)” contract. The main

difference between them is that with the “Huur & Spaar” contract, a part of the rental fee is

saved into a saving account, called “Kooptegoed” in Dutch. And the money being saved can

be spent on buying any artwork at the gallery that the renter rents the artwork in the future.

Therefore, the “Huur & Spaar” contract is normally more expensive than the “Huur” contract

and in addition, with the “Huur & Spaar” contract, renters can choose more various and

expensive artworks in contrast with the rental artworks with the “Huur” contract. However,

this distinction between two kinds of contracts is not absolute since some art-rental

organizations have only the “Huur & Spaar” contract, such as SBK Amsterdam. And

furthermore, the rental fee is also various among the rental organizations, For example, under

the “Huur” contract, some art-rental organizations set 1% of the highest price of an artwork

within the price group that its value belongs to as the rental fee, for example, the rental fee for

a painting with a value of €1500 that belongs to the price group “<€1000<€2000”, then the

rental fee for it is €20 per month, such as Kunstuitleen Dijkstra. However, some art-rental

organizations set lower percentage of it as the rental fee, such as CBK Amsterdam. In

addition, under the “Huur & Spaar” contract, CBK Amsterdam saves 50% of the rental fee

into the “Kooptegoed”; in contrast, SBK Amsterdam saves 100% of the rental fee into it.

Therefore, there is no standard rental fee for both types of contracts on the Dutch art-rental

market.

The artworks for rent are the contemporary artworks, and they are unique since they are the

creations of artists. The art-rental organizations attain these artworks for their collections with

different channels (Drem, in Kunst en Cultuure, 05-03-2009): They can be the artists (both

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beginner and well-known artists) themselves that lease out their own artworks to the

consumers; they can give artists permissions for making artworks for their consumers; they

can provide a platform for artists or owners of artworks on their websites and via the website,

artists or owners of artworks can make an account and offer their artworks to the consumers

to rent or buy. These channels for both artists and consumers are easy to approach. Therefore,

art lease is a good manner to support the beginner artists. This is also the principle of SBK

Amsterdam: supporting the young artists (Kempers, 2005).

The easy-to-enter feature of art lease provides sufficient artworks to the Dutch art-rental

market. These artworks are in various forms, such as painting, printing, drawing, photograph,

sculpture and ceramic. And their sizes are available from small to big. The prices of artworks

are also various from cheap to expensive. Thus, its supply can satisfy the consumers’ demand

adequately on the Dutch art-rental market.

3.3 The features of art lease in the Netherlands

Compared to other rental market, the art rental market is distinctive in several ways. First, art

is not like other consumption products, such as cars, or TV in the sense that it cannot be

reproduced. This means that every piece of artwork is unique. Second, art has a public-good

characteristic, which implies that everyone could be a free rider of it. Since the emergence of

art lease, everyone could be a free rider of art if he or she visits an art-rental organization and

appreciate or enjoy its leasing artworks. The advantage of it is that art is more accessible to

people than before in the Netherlands in the sense that people do not need to pay for

experiencing art, i.e., paying for entrance to a museum. Third, art is different from other

consumption goods by its high-class image and its mystery to people. This image sets an

obstacle to people to approach art commonly. Art lease lowers the cost of experiencing art

and allows common people to experience art. Forth, art lease is different from other leases by

the “Try-Out” option. Everyone who rent an artwork is allowed to first to try out the artwork

and see if it fits to his or her demand, i.e., taste or style. If it does not fit, within a certain time,

he or she can return the artwork back to the art-rental organization. Fifth, art lease also

permits people to exchange their artwork with the art-rental organizations for another work.

In contrast, in other leases, people cannot or even not willing to change their rental goods

within the rental period.

This part provided the background information of art lease in the Netherlands against which

the research took place. It focused on three aspects: (1) the history of art lease in the

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Netherlands, (2) how art lease works in the Netherlands, and (3) the features of art lease in the

Netherlands. For now, we can turn to the empirical parts of the research, where the

methodology will be discussed and the analysis will be carried out.

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4. Research Methods and Results Quantitative Research

4.1 Introduction

This thesis examines whether we can measure cultural value of an art object with people’s

willingness to pay for renting it on the art rental market, and investigates what are the

difficulties of measuring it on this market. To achieve these aims, we conducted both a

quantitative research and a qualitative research. The main research questions are:

1. For the quantitative research

Can we measure cultural value of an art object with people’s willingness to pay for renting it

on the Dutch art rental market?

2. For the qualitative research

What are the difficulties of measuring cultural value of art on the Dutch art rental market?

This part will discuss the methods of the quantitative research, and present the results of it.

Based on the main research question, we measure both the level of cultural value of art and

people’s willingness to pay for renting it, and the factors that influence people’s demand for

art on this market. The data is obtained through the collection of 40 questionnaires to generate

extensive results and to generalize the particular findings to the population. Enlightened by

the literature, we have formulated two hypotheses, which can be tested with the results of the

quantitative research. The hypotheses are illustrated as below:

Hypothesis 1: People’s willingness to pay for renting a piece of art object cannot reflect all

aspects (functioning’s) of its cultural value on the Dutch art rental market.

Hypothesis 2: People’s demand for art is affected by various factors in addition to its cultural

value. As a result, their WTP for renting an artwork cannot precisely reflect the level of its

cultural value that people obtain from renting it on this market.

In the following sections, we introduce research method and sampling for the study and also

discuss the advantages and disadvantage of the sampling method. Furthermore, we describe

the data collection and the variables. In turn, we will discuss the validity and reliability of this

44

research. Finally, the hypotheses will be testified and the main findings of the quantitative

research will be presented.

4.2 Research methods and sampling

The objective of this study is to find out the consumers’ socio-economic status, the level of

cultural value of art that the consumers are looking for or gained from renting it, and the

consumers’ WTP for renting a piece of art object. The research design of the research is a

cross-sectional design. It entails data to be collected on more than one case at a single point in

time. The research method used in this study is a self-completion questionnaire and a simple

random sampling has been applied in order to gather data. This sampling method is the most

basic form of probability sample and it requires each unit of the population has an equal

probability of inclusion in the sample (Bryman, 2004: 171). The advantage of this method is

that findings can be generalized from a sample to a population.

In the study, the population for the study consisted of people that are interested in the visual

arts. Within those people, the sampling frame contains the consumers that are interested in

renting a piece of art object at the Dutch art rental galleries. The art rental galleries are the

places that people rent pieces of artworks. Accordingly, they are the best locations where the

sample can be found. A part of the questionnaires was surveyed with face-to-face interview.

However, there are numbers of people who are interested in renting artworks around the

Netherlands. It was not possible to include every one of them. So we chose the art rental

galleries in Tilburg. Nevertheless, only 6 respondents were found within one week since there

were very less consumers due to the vacation period in the Netherlands. Furthermore, the art-

rental galleries were not allowed to provide us the contact information of their consumers. We

had to explore other ways to collect my data. Since Museum Boijmans van Beuningen is a

museum that has diverse collection ranging from medieval to modern art, with a focus on the

Dutch visual arts in Rotterdam, it was a suitable location to gather data. Within one day, 12

respondents were collected. Moreover, collecting data through the Internet is an efficient way.

An online questionnaire has been made and it has been posted on 3 Dutch forums: de

Museumserver forum, Forum Stad Gouda, and Forum Stad Maastricht. They all contain a

board for people who are interested in art. In one-week time, 22 respondents were found via

the forums.

So in total, 40 respondents were collected through three channels: the art rental galleries in

Tilburg, Museum Boijmans van Beuningen, and the online forums. It can be argued that the

sampling for the research has both advantages and disadvantages: on one hand, it focuses on

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the art rental galleries in Tilburg and Museum Boijmans van Beuningen Rotterdam. It saved

time and travel costs to collect the data. Furthermore, the online survey can collect data all

over the Netherlands. On the other hand, it can be argued that the sample is not representative,

since the consumers of the art rental galleries in Tilburg cannot represent all the consumers of

the art rental galleries in the Netherlands. Moreover, the respondents collected from the

museum and the online forums might not sincerely treat the questionnaire.

4.3 Data collection and variables

Two sub-questions have been formulated based on the hypotheses and need to be examined

with the results. Those sub-questions are as follows:

Sub-question 1: Can people’s WTP for renting an artwork reflect all aspects (functioning’s)

of its cultural value on the Dutch art rental market?

Sub-question 2: What factors do influence people’s demand for art on the Dutch art rental

market?

In order to measure those sub-questions, the dependent variables and independent variable

must be accurately defined with the theoretical concepts used in the research. And the data of

those variables need be collected through the research methods.

The consumer’s WTP for renting a piece of art object (dependent variable): In the

research, the consumer’s WTP for renting a piece of art object is the dependent variable.

There are two kinds of contracts: the “Huur” contract and “Huur & Spaar” contract.

Accordingly, the consumer’s WTP can be divided into two kinds: WTP under the “Huur”

contract (WTP1) and WTP under the “Huur & Spaar” contract (WTP2). The research

conducted a contingent valuation (CV) method to elicit the consumer’s WTP. This process

has been described in Appendix1.

The level of cultural value of an art object that a consumer is interested in (independent

variable): The survey examined the level of cultural value of art that each consumer was

interested in from renting an artwork. Based on Throsby’s (2001) 6 components of cultural

value of art, we formated a “Likert scale” to examine each respondent’s interest level for

every component of cultural value: the respondent was asked to specify his or her level of

agreement or disagreement with every statement referring to his or her interest level of each

component of cultural value. To be more precise, the level of agreement or disagreement with

each statement was put in order and abbreviated as: Strongly Agree (SA), Agree (A), are

46

undecided (U), Disagree (D), Strongly Disagree (SD); and the respondent’s interest level of

each component of cultural value revealed in every statement was consistent with his or her

level of agreement or disagreement. In such cases, the more strongly that an respondent

agrees with the statement referring to one component of cultural value, the more interest that

the respondent has for that component of cultural value; in contrast, the more strongly that an

respondent disagrees with the statement referring to one component of cultural value, the less

interest that the respondent has for that component of cultural value.

Based on the 6 components of cultural value, 6 statements have been made under a main

clause as followed:

I am interested in renting an artwork because:

1-Aesthetic Value: The artwork is beautiful, stylish, or a good taste.

2-Spiritual Value: The artwork can stimulate my spirituality (e.g. for your belief, faith).

3-Social Value: The artwork is created by a famous artist or an artist with a good-reputation.

As Throsby (2001:29) demonstrates, the artwork can convey a sense of connection with

others and it can contribute to a sense of identity. For the research, I adopt his opinion and

connect artist reputation with people’s (consumer’s) identity in the society.

4-Historical Value: The artwork can tell me a history or a story in the past. As Throsby

(2001:29) explains, historical value of an artwork is its historical connections: it can reflect

the conditions of life at time it was created, and it can illuminate the present by providing a

sense of continuity with the past. In addition, historic value is not the basic value of

contemporary art. Thus, historical value of an artwork is about its content rather than its

history.

5-Symbolic Value: The artwork can represent a symbol that can convey a meaning to me.

6-Authenticity Value: I appreciate that the artwork is real, original and unique.

As shown above, we coded the 6 components of cultural value by using a nominal variable: 1-

Aesthetic Value, 2-Spiritual Value, 3-Social Value, 4-Hisotrical Value, 5-Symbolic Value, 6-

Authenticity Value.

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The consumers (respondents) were asked to indicate their level of agreement or disagreement

with the statements by indicating whether they: Strongly Agree (SA), Agree (A), Are

undecided (U), Disagree (D), Strongly Disagree (SD). We coded the level of agreement by

using an ordinal variable: 1-SD; 2-D; 3-U; 4-A; 5-SA and these codes were also the values of

these variables. Since the respondent’s interest level of each component of cultural value

revealed in every statement was consistent with his or her level of agreement or disagreement,

the level of each component ranged from 1 to 5. In this respect, the average level of any

component ranged below 4 indicates that this component of cultural value of art in general is

not interesting cultural value (or purpose) that the consumers are looking for on the Dutch

rental market.

Other factors (independent variables): Since our hypothesis is that various factors in

addition to cultural value of art affect the consumer’s WTP for renting a piece of artwork, we

focused on some important factors, which include: artwork-specific features (the form, the

size, the price of artworks), the socio-economic status of consumers (the education level, the

professional status, and age of consumers), and external factors (the bias of WTP eliciting

method, the information that respondents possess). The process of the data collection for

those variables has been depicted in Appendix 2.

Self-completion questionnaires

In order to collect the data, a self-completion questionnaire has been designed and conducted

among the respondents both through the Internet and face-to-face interviews. The

questionnaire has been attached in Appendix 3. It should be aware of the data collected

through two methods must be different on their accuracy. Both of them have their own

advantages and disadvantages. The advantages of conducting the survey online were that it

allowed us to collect the data more quickly and widely than another face-to-face method.

However, we could not control and explain the questions to our respondents as through

another method. Consequently, the deviated data likely appear. In contrast, the advantage of

face-to-face interview enabled us to control and explain the questions to our respondents, but

it took more time and cost. In addition, it might bias the data, since the respondents’ answers

could be disturbed by the interaction during the survey.

4.4 Validity and reliability

Validity has to do with whether a measure of a concept really measures that concept. And

reliability is fundamentally concerned with issues of consistency of measures. (Bryman,

2004) The main problems of the research occurred in the sample selection and the design

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questionnaire. As only 40 respondents were collected, this sample size was small. This is the

main disadvantage of the sampling. Furthermore, it can be argued that the sample is not

representative since only a small part of the sample were collected from the art-rental

galleries in Tilburg, and the rest of them were from the museum and internet. As a result,

although they were art lover, they might not have much information about art rental.

Moreover, the willingness to pay that has been elicited with questionnaires might be less

reliable and sometimes even invalid. As Snowball (2008) declared, no one can be sure that

respondents will tell their true willingness to pay since the willingness to pay is elicited under

a hypothetical situation (market). Although we conducted face-to-face interview, this problem

was still difficult to prevent.

4.5 Results and conclusions

The following sections present the results of the questionnaires and answer those sub-

questions subsequently. This process is conducted with the statistical program SPSS. Through

this program, graphs and tables have been produced and generated in order to achieve

conclusions to those questions. As a result, the main research question will be answered. The

majority of those graphs and tables can be found in Appendix 4.

Sub-question 1: Can people’s WTP for renting an artwork reflect all aspects (functioning’s)

of its cultural value on the Dutch art rental market?

Graph 4.1 in appendix 4 demonstrates that the highest average level of cultural value that the

respondents were interested in were the aesthetic and authenticity value both with a score

above 4. In comparison, the lowest average level of cultural value was the social value with a

score about 2. The average level of the symbolic value was the third highest level of cultural

value with a score about 3.7. And the average level of the historical value and the spiritual

value were about 3.1 and 3.0 respectively. Since the average level of any component ranged

below 4 indicates that this component of cultural value of art in general is not interesting

cultural value (or purpose) that consumers are looking for on the Dutch rental market.

Therefore, the results imply that people rent an artwork on the Dutch art rental market

because they are interested in its aesthetic and authenticity value. In other words, they rent an

artwork because it is beautiful, stylish, and a good taste and because they appreciate that the

artwork is real, original, and unique. In this respect, their WTP for renting an artwork mainly

reflects on its aesthetic and authenticity value rather than all aspects (functioning’s) of its

cultural value.

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Sub-question 2: What factors do influence demand for art on the Dutch art rental market?

In order to answer the question, we first focused on artwork-specific features and socio-

economic status of the respondents and examine whether their demand for art on this market

has been influenced or constrained by those factors.

The form (technique) of artwork

The respondents were asked to choose their preferred forms of artwork when they considered

renting an artwork. Since more than one form of artwork could be ticked, it means that we

have to examine the sum of each form of artwork preferred by the respondents. As Graph 4.2

illustrates, the most popular form of artwork was painting, which has been chosen by 37

respondents (92.5% of the entire respondents). The second most preferred form of artwork

was photograph, which has been chosen by 24 respondents (60% of the entire respondents).

The third most favorite form of artwork was drawing chosen by 18 respondents (45% of the

entire respondents). In contrast, only few respondents preferred ceramics and sculptures when

they considered renting a piece of art. In this sense, the results indicate that people’s demand

for art on this art market depends on its form (technique). The most demand towards

paintings, and photographs.

The size of artwork

As Graph 4.3 reveals, as much as 45% of the respondents have a size requirement when they

considered renting an artwork. It implies that the size of artwork is one of their concerns when

they rent it. In other words, the size of artwork might constraint people’s demand for art on

this market.

The price of artwork

We took the market rental price as an artwork-specific feature since an artwork is a luxury

good and people derive additional satisfaction from the conspicuous consumption of high-

priced luxury good (Mandel, 2009) besides artistic satisfaction. Therefore, we looked at the

price groups of artwork that the respondents were interested in. As Table 4.1 and 4.2 indicate,

under both types of contracts, the most preferred price group by the respondents was the price

between €0 and €500. And the second most preferred price group was the price between €

501 and €1500. Only few respondents have chosen the price between €3001 and €5000.

Those results show us that people do not derive their satisfaction from high-priced artwork on

this market. It also means that people do not demand high-priced (expensive) artworks on this

market.

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Education level

With regard to the education level of respondents, as much as 35% of the respondents that

were interested in renting an artwork had a university master degree, which was the highest

percentage among all the education levels. The respondents with a HBO education

background also had a great interest in it. In comparison, very less respondent with a

compulsory education background were interested in renting. In addition, as Graph 4.5

demonstrates most experienced respondents have a high education background. The results

imply that the education level of people play an important role in their demand for art in this

market.

Professional status

As for the professional status of respondents, Graph 4.6 and 4.7 indicate that 40% of the

respondents that were interested in renting were company employees, which was the highest

percentage among all kinds of professional statuses. And they were also the majority that has

ever rented an artwork on this market. In contrast, very less retired and jobless respondents

were interested in renting. The results indicate that people’s demand for art also depends on

their professional status.

Age

Referring to the age of respondents, Graph 4.8 and 4.9 illustrate that most of respondents who

were interested in renting an artwork on this market were between age 30 and 55. And they

were also the majority that has ever rented an artwork on this market. Although the

respondents between age 18 and 29 have shown a great interest in renting, very less of them

have ever rented. The results imply that people’s demand for art relies on their age too.

The factors discussed above influence and constraint people’s demand for art on the market.

Since the demand for art determines their WTP for renting it. Therefore, those factors also

affect people’s WTP for renting an artwork on this market. In turn, we also examined whether

contingent valuation method could affect people’s WTP for renting a piece of art. The

criterion for it was to examine the deviation among the respondents’ WTPs.

WTP eliciting method

We used “Boxplot” of SPSS to examine the deviation among the respondents’ WTPs. As

Graph 5.0 and 5.1 show, under both types of contracts either type of respondents have given a

much higher WTP, which was clearly deviated from the middle half of their WTPs. For

example, one non-experienced respondent’s WTP were €100 per month much higher than

middle half of others (between €10 and €50) under the “Huur” contract. In addition, one

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experienced respondent’s WTP was extremely higher (€300 per month) than the middle half

of others (between €10 and €20) under the “Huur & Spaar” contract. The results imply that

people might not give their true WTP in the contingent valuation study.

Information

We also testified whether people’s WTP could be influenced by the information that they

possessed. We looked at the average WTP of both non-experienced and experienced

respondents and examined whether there were difference between them. Graph 5.2 reveals

that on average non-experienced respondents’ WTP was higher than experienced

respondents’ WTP under either type of contract. In particular, under the “Huur & Spaar”

contract, the non-experienced respondents’ WTP was much higher than experienced

respondents’ WTP on average. These results indicate that people with more information about

the art rental give less WTP than people with less information about it. In other words, it

means that more information (experience) might reduce the cost of art consumption. This was

consistent with Throsby’s (1994) idea that in the household production model, the relative

consumption of the arts will rise over time, because the shadow price of the arts falls as

experience, understanding and other human capital attributes associated with the arts are

acquired.

4.6 Conclusion

Through this quantitative research, we have demonstrated that the extent to which that

measuring cultural value of an artwork with people’s WTP for renting it on the Dutch art

rental market was limited. Although the components of cultural value of an art object could

form the preferences of people for it, but the preferences could not be measured with people’s

WTP for renting it on the market. As the results imply, (1) one of the main reasons for it is

that people’s willingness to pay for renting a piece of art object on the market could not cover

all aspects (functioning) of its cultural value. To be more precise, the results indicate that

people rent an artwork because they are interested in its aesthetic and authenticity value. In

other words, they rent an artwork because it is beautiful, stylish, and a good taste and because

they appreciate that the artwork is real, original, and unique. In this respect, their WTP for

renting an artwork mainly reflects on its aesthetic and authenticity value rather than all

aspects (functioning’s) of its cultural value.

(2) Another important reason for it is that the WTP is not an adequate or appropriate indicator

of cultural value of the art object, since it is influenced and constrained by various factors in

addition to its cultural value. The results reveal that people’s demand for art on this market is

affected by artwork-specific features and socio-economic status of the respondents, such as

52

the form (technique), the size, and the price of artworks; the education level, the professional

status and the age of respondents. Since the demand for art determines their WTP for renting

it. Therefore, those factors also affect people’s WTP for renting it on this market. Moreover,

the WTP is also influenced by the WTP eliciting method and the information that people

possessed. The results imply that people might not give their true WTP in the contingent

valuation study and indicate that people with more information about the art rental give less

WTP than people with less information about it. All in all, the extent to which that measuring

cultural value of an art object with people’s WTP for renting it on the market is limited.

Following the two main reasons, we went on to investigate the difficulties of measuring

cultural value of art in depth with a follow-up research question: what are the difficulties of

measuring cultural value of art on the Dutch art rental market? We focused on the practical

factors that influenced people’s demand for art on the art market. And we examined how

those factors affected their demand through a qualitative research on the supply side.

Furthermore, we explored the purposes of people renting a piece of art and investigated what

the underlying behavior of the consumers is on this market. The coming part will discuss the

methods of the qualitative research, and present the results of it.

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5. Research Methods and Results Qualitative Research

5.1 Introduction

By conducting a quantitative research, we did not only demonstrate that the extent to which

that measuring cultural value of an art object with people’s WTP for renting it on the Dutch

art rental market was limited, but also verified two main reasons for it. Following the two

reasons, we went on to investigate the difficulties of measuring cultural value of art in depth

with a follow-up research question:

What are the difficulties of measuring cultural value of art on the Dutch art rental market?

In order to answer it, we focused on the practical factors that influenced people’s demand for

art on the market. And we examined how those factors affected their demand through a

qualitative research on the supply side. Furthermore, we explored the purposes of people

renting art and investigated what the underlying behavior of the consumers is on this market.

Moreover, another objective of this research was to offset the limitations of the quantitative

research due to its small simple size and to generate the data that the quantitative research did

not collect. As Bernstein (2007) argued, through deductive reasoning (quantitative research)

researchers can get specific answers to well-defined questions and that this type of research

validates insight. With qualitative research on the other hand one can gain valuable insights

and descriptions, yet the insights are not validated. And Bryman and Burgess (1999) stressed

on the importance of qualitative research and stated that, qualitative research is taken to imply

an approach to social research in which quantitative data not collected or generated. And

qualitative research ends up being addressed in terms of what quantitative research is not. The

main disadvantages of the quantitative research were its small-size sample and incomplete

data due to the fixed structure of the questionnaire. Thereby the qualitative research was to

offset the limitations of the quantitative research due to its small simple size and to generate

the data that the quantitative research did not collect. In addition, both types of research

methods mutually corroborated with each other to generate a greater validity of findings

(Bryman, 2004).

According to the objectives of the qualitative research, we divided data for the research into

two units: the practical factors, and the purpose(s) and the underlying behavior. It means that

54

data were also collected under these two units. To be more precise, the first sub-question of

the qualitative research focused on the practical factors that influence people’s demand for

renting art on the market. Those factors were proposed based on the practical situations where

the artworks were being rented out. They included level of the art market, art rental

organization itself (SBK Amsterdam), location and housing condition of consumers, and

business model of art rental organization (SBK Amsterdam). The second sub-question

addressed the purpose(s) of people renting art and the underlying behavior of the consumers

on the art market. We explored first the purpose(s) of people renting it. And then we turn to

the determinants of art prices that we have discussed in the literature and examine how those

factors influence their consumption behavior on this market.

The research design of the qualitative research was a “case study”. It investigated the Dutch

art rental market in general and also focused on an art rental institution-SBK Amsterdam and

its subsection-SBK Breda in particular. We collected qualitative data from observation and

examination of documents in connection with the Dutch art rental market and as well the

Dutch art rental institution - SBK Amsterdam. And we also collected data by conducting

semi-structured interviews with the personnel’s of SBK Breda (a subsection of SBK

Amsterdam).

5.2 Criteria for selecting the art rental institution

Among all the art rental organizations in the Netherlands, we have selected SBK Amsterdam

as a particular art rental institution to study. In addition, we collected the qualitative data

through semi-interviews with the personnel’s of SBK Breda, which is a subsection of SBK

Amsterdam. There were several criteria for this selection as follows:

(1) SBK Amsterdam is the biggest art-leasing center that encompasses 55.000 collections in

its inventory (Drem, in Kunst en Cultuur, 05-03-2009, http://www.sbk.nl/aboutsbk.php). It

means that people have a broad choice when they rent an artwork at SBK Amsterdam.

(2) SBK Amsterdam is a non-profit art organization according to its mission: art is for

everyone through art lease. This mission complies with its founder’s (Pieter Kooistra) will,

which was art is through art lease affordable to people.42 In such cases, SBK Amsterdam

provides people artworks not for making a profit and it is for everyone in the Netherlands. As

a result, people’s demand for art is not interrupted by any commercial purpose. And the

research on this organization can refer to a broad scope of consumers.

42 In Dutch, his will was “de opbouw van een uitleensysteem dat de kunstenaar een zinvolle plaats in de samenleving zou geven en voorzag in de ‘geestelijke behoeftes’ van de naoorlogse mens”.

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(3) SBK Amsterdam is the longest existing art-leasing institution in the Netherlands. The

founder of SBK was also the founder of the Dutch “art lease43” system. This system has been

applied by many other art-leasing organizations in the Netherlands. In this sense, its abundant

experience and knowledge with its consumers are worth to study.

(4) SBK Breda as a subsection of SBK Amsterdam is important and it is suitable location to

conduct the qualitative interviews. Its location is nearby. Therefore, it saved cost and time.

And the most important is that one personnel (Daniela Van Benthem) that was willing to

participate in the interviews was a senior (8-year) employee of SBK Amsterdam. She did not

only have abundant experience and knowledge over the organization, but also about the

consumers of the organization. It means she can provide us trustworthy and authentic

qualitative data for the research.

5.3 Validity and reliability

As Bryman (2004) stated, the issue of validity and reliability can be discerned through

trustworthiness and authenticity. These criteria were the main concern of selecting the

purposive sample. We conducted semi-structured interviews with the personnel’s of SBK

Breda. Mrs. Daniela van Benthem was a senior (8-year) employee of SBK Amsterdam.

Therefore, she did not only have abundant experience and knowledge over the organization,

but also understand her consumers. In such cases, she can provide us trustworthy and

authentic qualitative data. However, language was the main obstacle when interviews were

conducted since she spoke only Dutch. This obstacle might influence our understanding to

each other. As a result, it might affect the validity and reliability of data.

5.4 Data analysis of the qualitative research

In the following sections, the sub-questions are answered and the results are linked to theory

(if applicable). Moreover, the research methods used are explicated.

5.4.1 The practical factors that influence the WTP

Data analysis is under two units in which data were collected. And under each unit, there is

one sub-question needs to be answered. We first focus on the first sub-question, which is:

Sub-question1: What are the practical factors that influence people’s demand for art on the

Dutch art rental market?

43 Art lease in Dutch is “Kunstuitleen”.

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Based on the practical situations where the artworks were being rented out, we look at first

the level of the art market to define on which level this sub market is since the level of an art

sub market is an important determinant of art prices. And then, we turn to the art rental

institution-SBK Amsterdam and focus on its art supply (the quality level of its artworks and

its artists, the value of its artworks). After that, we pay attention on the consumers (the

influences of their location and housing condition on their demand for art). Last, we analyze

the influence of the business model of SBK Amsterdam on its consumer’s willingness to pay.

5.4.1.1 Level of the art market

The art market is characterized by a hierarchy of submarket, which consists of the primary

market, the secondary market and the third market. And each level of the market has its own

features, which means that the supply-side power on each level of the market is various and

the level of doorsill to enter each level of the market is also different. As a result, the level of

the sub market determines art prices. And art price determines its rental fee. Based on this

theory, we examined on which level the Dutch art rental market was.

The data for it was mainly collected from examination of the documents about the art rental

market. The general information of art lease in the Netherlands has been described in chapter

3. The information was based on Drem’s online article “Kunstuitleen: Betaalbare

Kunstwerken binnen ieders bereik” (source: http://kunst-en-cultuur.infonu.nl/kunst/32907-

kunstuitleen-betaalbare-kunstwerken-binnen-ieders-bereik.html). We extracted the

information on the supply-side power of the market and its level of doorsill to enter, and

analyzed the level of this market based on that information.

As the article implied, the art rental organizations obtain their artworks for their collections

via three different channels: they can be the artists (both beginner and well-known artists)

themselves that rent out their own works to the consumers; they can give artists tasks with

commissions for making works for their consumers; they can provide a platform for artists or

owners of artworks on their websites and via the website, artists and owners can make an

account and offer their works to the consumers. It means that individual artists (both beginner

and with qualifications) provide artworks to the art rental galleries, or directly to find

consumers.

In addition, the article also pointed out that, about 95 art rental organizations under the name

such as “kunstuitleen”, “Artotheek”, “SBK”, “CBK”, and “Kunstcentrum” provided works of

art for rent on the market. A considerable number of art rental organizations revealed that

there are more individuals willing or able to provide works of art than there are individuals

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interested in acquiring them. In this respect, the Dutch art rental market has the features of the

primary art market.

Nevertheless, the distinction of this market from an ordinary primary market is that it builds

up the supply-side power of artists through an “art lease” system. And this system lowers the

price of art (even an artwork from a famous artist) on an affordable level, which enables

everyone to experience it. As a result, it also lowers the doorsill (at least the price level) of

this art market in which everyone is able to consume art. These features of the art market

determine a low-level rental fee. Consequently, it constrains people’s willingness to pay for

renting art on the primary market level. This result is consistent with the empirical result that

most people preferred the artworks with a price between €0 and €500 on this market.

5.4.1.2 Art rental organization itself

We turn to now the art rental institution-SBK Amsterdam. The attention is given to its art

supply referring to the quality level of its artworks and its artists, and the value of its works.

Before we touch upon those issues, a brief introduction about this institution has to be given.

The data for it was mainly collected by examination of the online document (Source:

http://www.sbk.nl/aboutsbk.php) of SBK Amsterdam and from the semi-structured

interviews.

SBK Amsterdam

The SBK Kunstuitleen Amsterdam, founded in 1955, is the first established art lending

foundation in the Netherlands. It is also the biggest art lending foundation in the Netherlands.

The foundation has 10 subsections in Amsterdam, Breda, Den Helder, Helmond, Oosterhout,

Tilburg, and Veendam. Moreover, it has the virtual gallery on the Internet. SBK Amsterdam

has a large collection-more than 55000 pieces of contemporary, expressive art that were made

by artists who live and work in the Netherlands. The collection consists of many different

kinds of art forms, such as paintings, graphic art, sculptures, drawing, photographs, and

ceramics. The art is acquired directly from the artist. SBK Amsterdam has connections with

more than 5000 artists who regularly sell their art to the foundation. The member of SBK

Amsterdam can rent one or more pieces of art that can be kept at home for an indefinite

period of time. And in the rental period, members always have the possibility to change their

rented piece of art for another piece from the SBK collection. The rate one pays for an

artwork depends on its value. With 5 euro a month it is possible to have an artwork at home.

And the entire amount paid for the rental will be saved by SBK Amsterdam toward future

payment for an artwork that a member decides to buy from the SBK-collection.

(Source: http://www.sbk.nl/aboutsbk.php)

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Art supply of SBK Amsterdam

The brief introduction of the institution revealed its artworks are acquired directly from the

5000 artists that the foundation has connections with. However, an interview with Mrs.

Daniela van Benthem informed us a new channel that SBK Amsterdam acquired its artworks.

As Mrs. Daniela van Benthem said, SBK Amsterdam has enhanced its collection by taking

over the collection from Artotheek and as well from a part of BKR-collection in 2003.

According to her 15000 works have been taken over and added into SBK-collection.

What is the quality level of SBK-collection?

The quality level of SBK-collection depends on the channels where SBK Amsterdam

acquired its works. As Mrs. Daniela van Benthem pointed out, the artworks consist of the

works from 5000 artists, a part of Artotheek-collection, and a part of BKR-collection.

According to her, the works from the artists must be qualified to one important requirement of

SBK Amsterdam, that is the artists must have already presented their premier in the

Netherlands and have their own collection. It means that those works have a potential to enter

into the secondary art market, where considerable market power can be exercised by the

galleries and dealers who handle most of the sales in this market (Throsby, 1994: 5). As she

added, each subsection of SBK Amsterdam was a complex of “Kunstuitleen” and

“De40eurogalerie”, and “De40eurogalerie” was set up to present and sell the works of those

5000 artists. It verified that their works have already entered into the secondary art market in

the Netherlands.

Referring to the artworks from Artotheek, Mrs. Daniela van Benthem told us that Artotheek

does not exist anymore in the Netherlands. Artotheek was in fact an old “art leasing” system.

Before 2002, artists could lend their artworks to Artotheek where the artworks could present

to people in the Netherlands. Therefore, Artotheek had also a strict quality demand to the

artworks that it acquired from artists.

As Mrs. Daniela van Benthem pointed out, BKR-collection was built up based on the Dutch

art subsidy system toward to Dutch artists. The system is that artists were asked to hand in

certain numbers of their works every year in order to obtain BKR subsidy. This system

lowered the quality level of BKR-collection since many artists created works not for artistic

quality but for gaining subsidies. Even though there were good-quality artworks from BKR-

collection and SBK Amsterdam has tried to select them from it and added into SBK-

collection according to her. During my visit to SBK Breda, I observed that there were also

artworks from famous artists available to rent. The works from Jaap de Vries were added into

SBK-collection in 2006 before he was famous in the Netherlands. However, since in 2009 he

won Wim Izaks Prijs and his works are also presented in international galleries and

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exhibitions. Therefore, the value of his works of art also enormously increased according to

Mr. Michael-another personnel of SBK Breda.

All in all, the quality level of SBK-collection is good quality. In this respect, although the

Dutch art rental market has features of the primary art market, it has good-quality artworks

that can enter the secondary art market or even third art market.

Although there are good-quality works in SBK-collection, most of them were old according

to Mrs. Daniela van Benthem. As she explained, since SBK Amsterdam took over Artotheek-

collection and bought in part of BKR-collection, the foundation had slowed down buying in

new artworks from its 5000 artists. On the other hand, as she pointed out, art lease of SBK

Amsterdam works as a promotion channel for its “De40eurogalerie”. The foundation

expected through art lease to enable people to approach the works of its “De40eurogalerie”,

which are mainly the newest contemporary art from its 5000 artists. That is also the reason

why each subsection of SBK Amsterdam is a complex of “Kunstuitleen” and

“De40eurogalerie”.

What is the level of its artists?

Given the fact that the artists must have already presented their premier in the Netherlands

and have their own collection, those artists have already made a transition from the primary

market to the secondary market and some of them even entered the third art market, such as

Jaap de Vries. However, SBK-collection contains also the artworks from BKR-collection. As

Mrs. Daniela van Benthem revealed, not all BKR artists are good-level artists. It means that

not all BKR artists can make a transition from the primary market to the secondary market.

Therefore, the level of its artists that provided artworks to the organization is various.

The value of its artworks

As Mrs. Daniela van Benthem told, the maximal rental fee per month for an artwork is 100

euro and the maximal value of art in SBK-collection is no more than 10000 euro. Since the

rate one pays for art depends on its value. In this sense, SBK Amsterdam might not satisfy the

consumers with a demand for a high value (expensive) work. In addition, Mrs. Daniela van

Benthem added that the main goal of SBK was to enable everyone to approach art rather than

to gain profits and on the other hand, her consumers do not demand high-priced (luxury)

works at the art rental. Therefore, the price level of art available for rent and the rental rate

constraint some people’s willingness to pay for renting an artwork. This point can be traced

back to the result of the quantitative research, that is one experienced consumer’s willingness

to pay was extremely higher than average.

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5.4.1.3 Location and housing condition of consumers

Referring to the consumers, as they (Mrs. Daniela van Benthem and Mr. Michael) considered,

it was a difficult question to give a clear answer on the socio-economic status of consumers.

As they concerned, the main problem is that the scope of their consumers was very wide since

“art-leasing” system enabled everyone to consumer art at SBK Amsterdam. Even though they

admitted that the average age of the consumers was about 30 to 60. And most of the

consumers had a good education background. These results are consistent with the findings of

the quantitative research.

In contrast, the apparent practical issues that influence and constraint their demand for renting

art were their location and housing condition according to Mrs. Daniela van Benthem. The

location refers to the theory (i.e. Sagot-Duvauroux, 2003 in Towse) that art price depends on

the location where it is sold. In the rental market, people’s demand for art is also various

among different locations. As Mrs. Daniela van Benthem said, people had a different demand

in each subsection of SBK Amsterdam: In Breda, people like colorful oil canvas paintings. It

means people’s demand various on the subject, material and technique support and etc.

depends on their location. Therefore, she said that she was also responsible for selecting

artworks satisfying people’s demand in Breda. In this respect, she was an art expert that

influences people’s demand for art with her decision on the selection of artworks.

Another practical issue that constrained people’s demand for art was their housing condition.

The point is that housing condition is closely related to the size of artwork that people

demand, which further influences their willingness to pay for renting it. It refers to the theory:

the size of an artwork is one of the most apparent physical properties that affect art price on

the art market and it is considered to be positively correlated to art price (Sagot-Duvauroux et

al, 1992). However, it has also a depressing effect (Anderson, 1974, Sagot-Duvauroux et al,

1992 and 2003 in Towse), since odd formats (extreme size) of artworks are difficult to display

in either private houses or company buildings (Frey and Pommerehne, 1989b). As Mrs.

Daniela van Benthem considered, it was hard to aggregate people’s demand on the size of

artwork as everyone had different requests. As she said, there was no a standard format in

SBK-collection. Based on my observation during my visit in SBK Breda, I found out that

there were various formats of artworks, but there was seldom an odd format (extremely

large). The possible reason for it is when people rent a piece of art, especially for their private

house, an odd format will not be suitable to place at civil rooms (i.e. living room and

bedroom). For that reason, there was no market for odd formats on the Dutch art rental

market. In addition, as Mrs. Daniela van Benthem explained, sometimes people preferred to

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rent for example 4 pieces of small works instead of 1 piece of big work. In this respect, it is

really difficult to perceive the size that people demand. Lastly, when I asked her whether they

had standard formats for small-, middle-, and big-size artworks, she told me that there was no

such standard. Her point was that consumers considered the size relatively with their housing

condition. For example, if they have a small room, then the middle size is probably too big for

their room. However, if they have a big room, then big size might be still small for their

room. Therefore, it is hard to aggregate the size of artwork that people demand on this market.

5.4.1.4 Business model of SBK Amsterdam

The last practical factor that affects people’s demand for renting art is the business model that

the art rental organization applies. The member of SBK Amsterdam can rent one or more

pieces of art that can be kept at home for an indefinite period of time. And in the rental

period, members always have the possibility to change their rented piece of art for another

piece from the SBK collection. It refers to the theory that people (i.e. Thosby, 1994)

consuming art is a process of obtaining experience. This business model allows consumers to

gain various and indefinite experience in the rental period. In this sense, their willingness to

pay is not an indicator for cultural value of an artwork, but for numbers of artworks.

5.4.2 Implications of the practical factors

After a review on the practical factors that influenced people’s demand for renting art, several

implications concerning the difficulties of measuring cultural value of art on the Dutch art

rental market, can be aggregated.

(1) The Dutch art rental market has the features of the primary art market. It is manifested not

only on the broad channels that the art rental organizations obtained their artworks for their

collections, but also on the considerable numbers of art rental organizations. Through the

broad channels both beginner and well-known artists can provided people works for rent. And

95 art rental organizations revealed that there are more individual willing or able to provide

artworks than there are individuals interested in acquiring them. Although the distinction of

this market from an ordinary primary market is that it builds up the supply-side power of

artists through “art-leasing” system, this supply-side power is not for generating high prices

since the system lowers the price of art to an affordable level so that everyone can consume

art. These features of the market determine a low-level rental fee. Consequently, it constrains

people’s willingness to pay for renting art on the primary market level.

(2) The in-depth examination on SBK Amsterdam confirmed the conclusion that we

researched above. Although SBK Amsterdam provided good-quality artworks that were

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qualified to enter the secondary or third art market, the problems were that most of the

artworks from SBK-collection were old. And SBK Amsterdam considered art lease as a

promotion method to enable everyone to approach the works of its “De40eurogalerie”. In

addition, the value of art in SBK-collection was maximal 10000 euro. As such, people’s

demand for high-priced (luxury) artworks cannot be satisfied in this market, as a result,

people cannot derive additional satisfaction from the conspicuous consumption of high-priced

luxury good (Mandel, 2009) besides artistic satisfaction. All in all, the Dutch art rental market

cannot satisfy all people’s demand for art. Therefore, people’s willingness to pay for renting

an artwork cannot present cultural value of all levels of artworks on different levels of

submarkets.

(3) The low-end market does not only constraints people’s willingness to pay for renting an

artwork, but also lowers the requirement on people’s experience and knowledge on art in this

market. Based on the theory that people’s insufficient information or knowledge about the

cultural good cannot make a reliable willingness-to-pay judgment about it (Throsby, 2001),

The WTP is not an adequate indicator of cultural value of art.

(4) The result has showed us that people’s demand for art is also various among different

location on the Dutch art rental market. It means that people’s demand on the subject,

material and technique support and etc. depends on their location. In this respect, although

people renting a piece of art are to gain its cultural value, the cultural value that people seek

for depends on their location. I perceive the difference of cultural value due to people’s

location can attribute to the theory that social determinants affect the psychic benefits of

owning particular genres of art objects (Frey & Eichenberger, 1995). The fact is that each

location has its own social determinants, such as culture, customs, mentality, economy, and

politic. All those factors affect people’s demand for art, for example on their taste, trend,

fashion, and genres. Therefore, it is difficult to use people’s willingness to pay for renting an

artwork to indicate its cultural value since the WTP is influenced by those social determinants

but it cannot reflect all of them. It is consistent with Throsby’s (2001) idea that some

characteristics of cultural value only can be measured but not be able to be translated to

monetary merit.

(5) In addition, since people’s demand for art is various among different location, therefore,

each subsection of SBK Amsterdam has its own collection for its consumers. The personnel’s

of each subsection is responsible for selecting artworks for their consumers. In such cases, the

personnel’s act as an art expert that influence people’s demand for art on this market.

(6) Another factor that influences people’s demand for art is their housing condition. It refers

to the theory: the size of an artwork is considered to be positively correlated to art price;

however it has also depression effect. (i.e., Anderson, 1974, Sagot-Duvauroux et al, 1992 and

2003 in Towse) The result showed us that people’s demand for art is constrained by their

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housing condition. There were seldom an odd format artwork in SBK Breda and people rent a

piece of art based on its relative size in compared with their rooms. It was hard to aggregate

people’s demand on the size since everyone has different need due to his or her housing

condition. As a result, the housing condition constraints people’s willingness to pay for

renting an artwork.

(7) Referring to the size of artwork, the personnel’s have also influence on people’s demand

for art. For example, the personnel assisted consumers to find right-size artworks based on

their request. Sometimes the personnel also gave advice on the size that would be suitable for

consumer’s room. Therefore, similarly the WTP is influenced by experts’ intervenes, so that it

cannot be an adequate indicator of cultural value of art.

(8) Last, the business model that art rental organizations apply also influence people’s

willingness to pay for renting an artwork to be an adequate indicator of it cultural value. The

point is that in the rental period, consumers always have the possibility to change their rented

piece of art for another piece. It refers to the theory that people (i.e. Thosby, 1994) consuming

art is a process of obtaining experience. As a result, the business model allows consumers to

gain various and indefinite experience in the rental period. In this sense, their willingness to

pay is not an indicator for cultural value of an artwork, but for numbers of artworks.

5.4.3 People’s purpose(s) of renting an artwork and their consumption behavior

Sub-question 2: What are the purpose(s) of people renting an artwork on the Dutch art rental

market? What is the underlying behavior of the consumers on this market?

In order to answer this question, we first examined what were the purposes that the consumers

of SBK Amsterdam rented art on the Dutch art rental market. And then we turn to the

determinants of art prices that we have discussed in the literature and examine how those

factors influence people’s consumption behavior on this market. The data for it was collected

through semi-structured interviews with the personnel’s of SBK Breda.

5.4.3.1 People’s purposes of renting artworks

The purposes of people renting art refer to the aspects (functioning) of cultural value of art. In

the quantitative research, we have examined the level of each component (Throsby, 2001) of

cultural value of art. And the results showed us that the aesthetic value and authenticity value

were the cultural values that most people were interested in and the social value was not

interesting aspect of cultural value of art on the art market. Following this clue, we

interviewed Mrs. Daniela van Benthem to examine the purposes (aspects of cultural value of

art) of her consumers renting art. According to her, the best way to explain the purposes of

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her consumers renting art was to compare the consumers of the art rental with the consumers

of the gallery-De40eurogalerie. As she explicated, the consumers of the art rental had a naïve

purpose of looking for something nice, beautiful. It means that the consumers are mainly

interested in the viewing service (Anderson, 1974, Stein, 1977) that artwork provides to them.

In other words, the main aspect of cultural value that people were looking for on the Dutch art

rental market was the aesthetic value. This result is consistent with the result of the

quantitative research. In contrast, the consumers that were buying an artwork at the gallery-

De40eurogalerie were not only interested in its viewing service, but also paid much (more)

attention on its material, technique, and profile of its artist (reputation and achievement of its

artist). For it, as Mrs. Daniela van Benthem explained, when people buy a piece of art, they

made their decision more cautiously for choosing it than people who rent it. According to her,

there were two reasons for it: (1) when people buy an artwork, they will own it. In contrast,

when people rent it, they will only experience it but not own it. (2) When people rent an

artwork, they are allowed to change their rented piece of art for another piece from the SBK

collection. In such cases, as Mrs. Daniela van Benthem considered, when people were buying

a piece of art, they were more concerned about its (artistic) quality since it determined its

value (both economic value and cultural value). As a result, they paid more attention on the

factors that affect its (artistic) quality, such as its material, technique, and profile of its artist

(reputation and achievement of its artist). This distinction revealed that the cultural value of

art that people demand on the Dutch art rental market is singular and incomplete aspect(s) of

cultural value. Therefore, on this market people’s willingness to pay for renting an artwork

cannot measure completed aspects (functioning’s) of its cultural value.

Since the main purpose of people renting art is to gain its aesthetic value, they must perceive

the factors that affect the prices of art differently from people who buy art at gallery or

auction. As Daniela van Benthem said, people that rent an artwork looked at art differently

from people that buy it (“Kijk anders ann kunst-Mrs. Daniela van Benthem”). The difference

between them relies on the fact that people that rent one pay more attention on the factors that

affect its viewing service (the aesthetic value of art), in contrast, people that buy one pay

more attention on the factors that affect its (artistic) quality (as a result, affect its value). In

this sense, people’s demand for art is mainly influenced by the factors that affect its viewing

service (the aesthetic value of art). Now we turn to the determinants of art prices that we have

discussed in the literature and examine how those factors influence people’s demand for art

on this market. The data for it was collected through semi-structured interviews with the

personnel’s of SBK Breda.

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5.4.3.2 Underlying behavior of the consumers

Material, technique and support

Those properties of artwork have impacts on its artistic value, so that affect the price of

artwork (Sagot-Duvauroux, 2003 in Towse). And the importance of those factors to the price

of art attributes to its durability and superior skills required for making or executing artworks.

(renger & Velthuis, 2002). However, since the main purpose of people renting a piece of art is

for its viewing service, people perceive the importance of those factors differently. As Mrs.

Daniela van Benthem declared, in general oil canvas painting is the most popular art to the

consumers at SBK Breda. And the reason for it according to her is that it is not only because

it is nice, and beautiful, but also because it is unique. In this respect, people that rent a piece

of art are not only looking for the aesthetic value, but also for the authenticity value.

However, the authenticity value is mainly its uniqueness (different from others) rather than

originality to the consumers. In addition, as Mrs. Daniela van Benthem considered,

consumers in each subsection of SBK Amsterdam have different taste for those prosperities of

artwork. That is reason why the personnels of SBK Amsterdam have to select consumers’

favorite artworks. In this respect, material and technique of artwork that people demand

depends also on people’s location.

In addition to those prosperities, the support is also an important consideration when people

rent a piece of art on the art rental market. During my visit to SBK Breda, I met a customer

who was returning a rented work. Since its original frame was broken he changed a new and

more luxury frame for it. However, As Mrs. Daniela van Benthem told, changing frame was

not allowed. The reason for it according to her is that a luxury (special, outstanding) frame

can influence people’s demand for art since it can distract people’s attention from art itself. It

means that frame as a support can influence people’s demand for art by affecting its aesthetic

value (viewing services). As Daniela van Benthem added, that was the reason that SBK

Amsterdam equipped all its collection with a standard (cool color, very normal) frame or

without frame.

Subject

Subject matter affects the prices of works of art. However, its effect on art prices is hard to

measure since subject matters different across various artists, time periods, buyer types and

markets (Adamowska, 2008). In addition, its impact on art prices is also influenced by other

factors, such as taste and fashions, expert opinions and buyer’s nationality (Adamowska,

2008). However, Sagot-Duvauroux et al. (1992) argued that subject matter might be no longer

of great importance for art price formation with reference to contemporary art. This viewpoint

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can be traced back to the finding of Anderson (1974), which stated that subject matter was not

an important variable that affected the realized prices of works of art at art auctions. So the

question is whether subject is an important matter to the consumers when they rent a piece of

art on the Dutch art rental market. As Mrs. Daniela van Benthem declared, it was hard to

aggregate consumers’ demand for art based on subjects. The reason as she considered was

that everyone was different. She meant that everyone’s taste was so different that no one

could predict his or her demand on subject. In addition, as Mrs. Daniela van Benthem added,

if a consumer thought a piece of art nice and beautiful, then he or she would rent it no matter

what subject it was. As Mr. Michael stated, instead of subject consumers in Breda were more

interested in colorful works. In this respect, it implies that subject is not an important matter

to the consumers since they pay more great attention on its aesthetic value (i.e., beauty, style)

on this market.

Reputation of artist

The reputation of artist has the strongest impact on art prices. It reveals an artistic quality and

is defined by the collective judgment of experts. Concerning this factor, as Mrs. Daniela van

Benthem considered, the reputation of artist was an important factor that SBK Amsterdam

determined the value of its artwork. However, it was not an important consideration when

people rent a piece of art. The reason for it according to her was that people rent in particular

for its beauty. Even though, as Mrs. Daniela van Benthem added, the reputation of artist

played a certain role when people already confirmed the aesthetic value of a piece of art. For

example, she explained to me with an example of a small-size painting, which was made by a

famous artist. Its value was much (twice) higher than other same-size paintings and even

higher than big-size paintings. As she told, if consumer considered it was a beautiful artwork,

and right size for his or her room, then he or she would be willing to pay for renting it. One

reason for it according to her was because of its affordable price; another reason was that it

was beautiful and right size. According to her, under these two preconditions consumer was

willing to pay more for renting an artwork created by famous artist.

Authenticity and signature

Authenticity presents the value of origin and novelty of an artist’s work. There are two main

aspects of authenticity in this sense: origin and novelty. The authenticity value presents

mainly for uniqueness (different from others) rather than originality to the consumers on this

market. In such cases, uniqueness is in fact novelty. As Mrs. Daniela van Benthem declared,

oil canvas painting was most popular to the consumers of SBK Breda since they considered it

always unique. Although signature is proxy for artwork’s authenticity and as a result it has a

positive contribution to the evaluation of the price of a work of art (Sagot-Duvauroux, 2003),

67

signature is mainly proxy for artwork’s origin rather than novelty. Therefore, that is why Mrs.

Daniela van Benthem said that consumers were no much concerned about signature of artist

on a piece of art when they rented it. In addition, another explanation for it was that people

that rent art have no risk due to the issue of fakes and forgeries since they do not own it.

Therefore, they do not require a signature to prevent the issue of fakes and forgeries.

Expert s

Experts serve and influence both the supply and demand of art. On the supply side, experts

act as a “gatekeeper” to judge artistic quality of the works of art and disseminate their

judgments though media and publications. On the demand side, experts’ judgments serve to

guide buyers to the works of art with a good artistic quality and with right tastes and trends.

Therefore, they play a significant role in the price formation of the works of art. However, on

the Dutch art rental market the role of experts is reversed. In general, they are directed by

consumer’s demand for art on this market. Although the personnel’s of SBK Amsterdam were

responsible to select suitable artworks for their consumers, the point is that they selected their

collection based on their consumers’ demand. And furthermore, as Mrs. Daniela van Benthem

told, consumers seldom required the information about the factors that determine the value of

artwork, such as reputation of artist, but mainly asked about its format and rental price. In

such cases, experts on the Dutch art rental market serve to help people to reach their demand

for art to the fullest.

Taste and Fashion

Regarding to taste and fashion, they are the most decisive but unpredictable factors on the

price formation of the works of art, especially at art auctions. As Mrs. Daniela van Benthem

said, consumer’s taste was very various. It is due to the broad scope of consumers in this

market. Even though, since the viewing service of art is the main concern of consumers, taste

and fashion in such cases are mainly guided by it. As Mrs. Daniela van Benthem said,

consumers always chose something that they like and they have their own standard to

consider its beauty, style, and taste.

5.4.4 Implications of the purpose(s) and the underlying behavior

After an examination on people’s purpose(s) of renting an artwork and the factors affect their

demand for art on the Dutch art rental market, several implications referring to the difficulties

of measuring cultural value of art on this market can be generated.

68

(1) The data have shown us that the main purpose(s) of people renting an artwork were to

acquire the aesthetic value and the uniqueness of authenticity value. This result verified the

finding of our quantitative research that the cultural value of art that people demand on the

Dutch art rental market is singular and incomplete aspect(s) of cultural value of art.

Therefore, on this market the WTP cannot measure completed aspects (functioning’s) of

cultural value of art.

(2) Since the main purpose of people renting an artwork is to gain its aesthetic value, people

in this market perceive the factors that affect the prices of art differently from people who buy

an artwork at gallery and auction. The difference between them is that people that rent art pay

more attention on the factors that affect its viewing service (the aesthetic value of art), in

contrast, people that buy art pay more attention on the factors that affect its (artistic) quality

(as a result, affect its value). In this sense, people’s demand for art is mainly influenced by the

factors that affect the viewing service of art (the aesthetic value of art). Through an

examination on how the determinants of art prices influence people’s demand for art on the

Dutch art rental market, we verified that people in this market perceive those factors

differently from people who buy art at gallery and auction. And the data revealed that the

determinants of art prices did not significantly influence people’s demand for art on this art

market unless those factors affected its viewing service. In this respect, it confirmed that on

the Dutch art rental market people’s demand for art cannot cover completed aspects

(functioning’s) of its cultural value. Therefore, the WTP cannot be an adequate and

appropriate indicator of cultural value of art.

5.5 Conclusion

In the previous chapter, we have attempted to explore what are the difficulties of measuring

cultural value of art on the Dutch art rental market. We focused first on the practical factors

that influenced people’s demand for art on the art rental market and examined how those

factors affected people’s WTP for renting an artwork to be an adequate and appropriated

indicator of its cultural value. Furthermore, we paid attention on the purposes of people

renting art and the underlying behavior of the consumers on the art market and investigated

why the WTP could not cover all aspects (functioning’s) of cultural value of art.

After a review on the practical factors that influenced people’s demand for art, we concluded

several difficulties of measuring cultural value of art on the Dutch art rental market: (1) The

Dutch art rental market has the features of the primary art market and it is a low-end art

market. These features of the market determine a low-level rental fee. Consequently, it

constrains people’s willingness to pay for renting art on the primary market level. (2) The

69

low-end market does not only constraints people’s willingness to pay, but also lowers the

requirement on people’s experience and knowledge on art in this market. Based on the theory

that people’s insufficient information or knowledge about the cultural good cannot make a

reliable willingness-to-pay judgment about it (Throsby, 2001), the WTP is not an adequate

indicator of cultural value of art. (3) People’s willingness to pay for renting a piece of art also

depends on their locations and housing conditions. The fact is that each location has its own

social determinants, such as culture, customs, and mentality, economy and politic. All those

factors influence people’s demand on art. And people’s demand on art is constrained by their

housing conditions, which is manifested on their size requirement. As such, the WTP is also

influenced by people’s location and housing condition. Therefore, it cannot be adequate

indicator of cultural value of art. (4) Experts also play a certain role in people’s demand on art

on the Dutch art rental market. On one hand, the personnel’s of the art rental organization are

responsible (make their own decision) to select suitable artworks to build up a collection for

their consumers. On the other hand, people’s demand on art is also influenced by the

information that personnel’s (experts) provide. (5) Last, the business model that art rental

organizations apply also influence people’s willingness to pay for renting an artwork to be an

adequate indicator of its cultural value. The point is that in the rental period, consumers

always have the possibility to change their rented piece of art for another piece. As such, the

business model allows consumers to gain various and indefinite experience in the rental

period. In this sense, their willingness to pay is not an indicator for cultural value of an

artwork, but for numbers of artworks.

Furthermore, an examination on people’s purpose(s) of renting an artwork and the factors

affect their demand on art on the Dutch art rental market provided us evidences on why the

WTP for renting art could not cover all aspects (functioning’s) of its cultural value. The data

have shown us that the main purpose(s) of people renting art were to acquire the aesthetic

value and the uniqueness of authenticity value. And the data revealed that the determinants of

art prices did not significantly influence people’s demand for art on the art rental market

unless those factors affected its viewing service. In this respect, it verified that on this market

people’s willingness to pay for renting an artwork cannot measure completed aspects

(functioning’s) of its cultural value.

All in all, measuring cultural value of art within the context of economic theory remains an

open and challenging issue. Even though, the qualitative research on the supply side provides

us a meaningful contribution to the study on this art rental market from a cultural-economic

perspective. (1) It demonstrates people’s purposes of renting art on the Dutch art rental

market. The main purpose(s) of people renting art is to acquire the aesthetic value and the

70

uniqueness of authenticity value. It means that the main functioning of art is to provide its

viewing service on this market. Therefore, the multi-dimensional nature of art and its cultural

value, such as it social value, historic value, spiritual value, and symbolic value cannot

completely appear on this market (at least those values are not people’s main concern). From

this point of view, it answers Throsby’s (2001) question on whether all aspects or singular

aspect of cultural value should be measured when an economic method is applied to measure

cultural value of cultural good. It depends on in what kind of art market cultural value of art

will be measured since each type of art market attracts different kind of consumers, and each

type of consumers has their demand for art, which is manifested on their consumption

behavior. (2) It illustrates the underlying behavior of the consumers through which it also

contributes to knowing what type of actors is in this art rental market. Given the fact that the

determinants of art prices did not significantly influence people’s demand for art on the art

rental market unless those factors affected its viewing service, the consumers are ‘pure

collectors (Frey & Eichenberger, 1995)’. Their decision on renting a piece of art is not

affected by change in risk, cost, taxes, and regulation since they like the artwork and do not

mind if its price increase or if its attribution becomes more uncertain. Nevertheless, these

‘pure collectors’ are different from the ‘pure collectors’ that buy works of art at galleries or

auctions. On one hand, they are not required to possess knowledge and experience on art in

order to rent a piece of art. On the other hand, their expectation from (cultural value of) art is

singular, which is mainly to gain the viewing service of art. (3) It provides strong evidence

that the art rental market is as important as the major galleries where important and expensive

art is bought and sold. The art rental market has been growing and become more and more

popular among people in this country. For example, SBK collection already contains 55000

artworks and its members have been growing every year. From a cultural-economic point of

view, its success relies on: first, a rented artwork is seen as an experience rather than a good

on this market. Art after all is an experience good. The difference between an experience

good and normal good is that people need experience it before they make consumption

choice. The art rental system allows people to experience it before they make a decision. For

example, people are allowed to have a try-out for an artwork for 3 weeks before they actually

decide to rent it. And furthermore, during the rental period, people can always change their

rented artwork for another. Second, art is different from other consumption goods by its high-

class image and its mystery to people. This image sets an obstacle to people to approach art

commonly. Art lease lowers the cost of experiencing art and makes art affordable to

everyone. Third, every piece of artwork is unique. Unlike other consumption goods, such as

car, or TV, art cannot be reproduced. Nowadays, people have demand for unique art in the

society full of mass products. (4) The success of art rental system on the Dutch art market

provides us a new business model of supporting art. In the conventional model, most of art

71

organizations are supported by government subsidies or public financial support since they

are non-profit organizations. However, the problem is that supporting them is always a big

issue especially in the period of economy recession. Many of them face a crisis of a shortage

of subsidy or public support. Through this business model, it can solve non-profit art

organizations’ financial problems, but also support poor artists. In addition, it enables art to be

accessible to everyone.

72

6. Conclusion

This thesis examined whether we can measure cultural value of an art object with people’s

willingness to pay for renting it on the art rental market, and investigated what are the

difficulties of measuring it on this market. The theoretical framework that we built up in

chapter 2 has been valuable to answer the research questions of both the quantitative and

qualitative study. First, the study on the value and valuation of art was helpful to understand

the extent to which we can measure it in the economic context is limited. And it also provided

a theoretical underpin to explore the difficulties of measuring it. Second, the study on

economic value and cultural value of art provided us concrete theoretical concepts and

methods to measure it on the Dutch art rental market. They were all essential to answer my

research questions.

6.1 Conclusion quantitative research

The main conclusion based on its findings was that the extent to which that measuring

cultural value of an art object with people’s WTP for renting it on the Dutch market was

limited. Although the components of cultural value of an art object could form the preferences

of people for it, but the preferences could not be measured with people’s WTP for renting it

on the Dutch art rental market. As the results imply, (1) one of the main reasons for it is that

people’s willingness to pay for renting a piece of art object on the Dutch art rental market

could not cover all aspects (functioning) of cultural value of the art object. To be more

precise, the results indicate that people rent an artwork on the Dutch art rental market because

they are interested in its aesthetic and authenticity value. In other words, they rent an artwork

because it is beautiful, stylish, and a good taste and because they appreciate that the artwork is

real, original, and unique. In this respect, their WTP for renting an artwork mainly reflects on

its aesthetic and authenticity value rather than all aspects (functioning’s) of its cultural value.

(2) Another important reason for it is that people’ willingness to pay for renting a piece of art

object on the Dutch art rental market is not an adequate or appropriate indicator of cultural

value of the art object, since it is influenced and constrained by various factors in addition to

its cultural value. The results reveal that people’s demand for art on this market is affected by

artwork-specific features and socio-economic status of the respondents, such as the form

(technique), the size, and the price of artworks; the education level, the professional status and

the age of respondents. Since the demand for art determines their WTP for renting it.

Therefore, those factors also affect people’s WTP for renting an artwork on this market.

Moreover, the WTP is also influenced by the WTP eliciting method and the information that

73

people possessed. All in all, the extent to which that measuring cultural value of an art object

with people’s WTP for renting it on the Dutch market is limited.

However, since the sample size of this research was too small, the validity of the findings has

to be evaluated. In addition, the factors that affect people’s willingness to pay could not

completely be covered or testified merely through the quantitative research due to its

limitations (the structure interview cannot cover all the issues). Therefore, we also conducted

a qualitative research to offset its limitations, and as well to generate the data, in particular, on

the factors that affect people’s WTP for renting an artwork on the Dutch art rental market,

that the quantitative research did not collect.

6.2 Conclusion qualitative research

After a review on the practical factors that influenced people’s demand for art, we concluded

several difficulties of measuring cultural value of art on the Dutch art rental market: (1) The

Dutch art rental market has the features of the primary art market and it is a low-end art

market. These features of the market determine a low-level rental fee. Consequently, it

constrains people’s willingness to pay for renting art on the primary market level. (2) The

low-end market does not only constraints people’s willingness to pay, but also lowers the

requirement on people’s experience and knowledge on art in this market. Based on the theory

that people’s insufficient information or knowledge about the cultural good cannot make a

reliable willingness-to-pay judgment about it (Throsby, 2001), the WTP is not an adequate

indicator of cultural value of art. (3) People’s willingness to pay for renting a piece of art also

depends on their locations and housing conditions. The fact is that each location has its own

social determinants, such as culture, customs, and mentality, economy and politic. All those

factors influence people’s demand on art. And people’s demand on art is constrained by their

housing conditions, which is manifested on their size requirement. As such, the WTP is also

influenced by people’s location and housing condition. Therefore, it cannot be adequate

indicator of cultural value of art. (4) Experts also play a certain role in people’s demand on art

on the Dutch art rental market. On one hand, the personnel’s of the art rental organization are

responsible (make their own decision) to select suitable artworks to build up a collection for

their consumers. On the other hand, people’s demand on art is also influenced by the

information that personnel’s (experts) provide. (5) Last, the business model that art rental

organizations apply also influence people’s willingness to pay for renting an artwork to be an

adequate indicator of its cultural value. The point is that in the rental period, consumers

always have the possibility to change their rented piece of art for another piece. As such, the

business model allows consumers to gain various and indefinite experience in the rental

74

period. In this sense, their willingness to pay is not an indicator for cultural value of an

artwork, but for numbers of artworks.

Furthermore, an examination on people’s purpose(s) of renting an artwork and the factors

affect their demand on art on the Dutch art rental market provided us evidences on why the

WTP for renting art could not cover all aspects (functioning’s) of its cultural value. The data

have shown us that the main purpose(s) of people renting art were to acquire the aesthetic

value and the uniqueness of authenticity value. And the data revealed that the determinants of

art prices did not significantly influence people’s demand for art on the art rental market

unless those factors affected its viewing service. In this respect, it verified that on this market

people’s willingness to pay for renting an artwork cannot measure completed aspects

(functioning’s) of its cultural value.

All in all, measuring cultural value of art within the context of economic theory remains an

open and challenging issue. Even though, the qualitative research on the supply side provides

us a meaningful contribution to the study on this art rental market from a cultural-economic

perspective. (1) It demonstrates people’s purposes of renting art on the Dutch art rental

market. The main purpose(s) of people renting art is to acquire the aesthetic value and the

uniqueness of authenticity value. It means that the main functioning of art is to provide its

viewing service on this market. Therefore, the multi-dimensional nature of art and its cultural

value, such as it social value, historic value, spiritual value, and symbolic value cannot

completely appear on this market (at least those values are not people’s main concern). From

this point of view, it answers Throsby’s (2001) question on whether all aspects or singular

aspect of cultural value should be measured when an economic method is applied to measure

cultural value of cultural good. It depends on in what kind of art market cultural value of art

will be measured since each type of art market attracts different kind of consumers, and each

type of consumers has their demand for art, which is manifested on their consumption

behavior. (2) It illustrates the underlying behavior of the consumers through which it also

contributes to knowing what type of actors is in this art rental market. Given the fact that the

determinants of art prices did not significantly influence people’s demand for art on the art

rental market unless those factors affected its viewing service, the consumers are ‘pure

collectors (Frey & Eichenberger, 1995)’. Their decision on renting a piece of art is not

affected by change in risk, cost, taxes, and regulation since they like the artwork and do not

mind if its price increase or if its attribution becomes more uncertain. Nevertheless, these

‘pure collectors’ are different from the ‘pure collectors’ that buy works of art at galleries or

auctions. On one hand, they are not required to possess knowledge and experience on art in

order to rent a piece of art. On the other hand, their expectation from (cultural value of) art is

75

singular, which is mainly to gain the viewing service of art. (3) It provides strong evidence

that the art rental market is as important as the major galleries where important and expensive

art is bought and sold. The art rental market has been growing and become more and more

popular among people in this country. For example, SBK collection already contains 55000

artworks and its members have been growing every year. From a cultural-economic point of

view, its success relies on: first, a rented artwork is seen as an experience rather than a good

on this market. Art after all is an experience good. The difference between an experience

good and normal good is that people need experience it before they make consumption

choice. The art rental system allows people to experience it before they make a decision. For

example, people are allowed to have a try-out for an artwork for 3 weeks before they actually

decide to rent it. And furthermore, during the rental period, people can always change their

rented artwork for another. Second, art is different from other consumption goods by its high-

class image and its mystery to people. This image sets an obstacle to people to approach art

commonly. Art lease lowers the cost of experiencing art and makes art affordable to

everyone. Third, every piece of artwork is unique. Unlike other consumption goods, such as

car, or TV, art cannot be reproduced. Nowadays, people have demand for unique art in the

society full of mass products. (4) The success of art rental system on the Dutch art market

provides us a new business model of supporting art. In the conventional model, most of art

organizations are supported by government subsidies or public financial support since they

are non-profit organizations. However, the problem is that supporting them is always a big

issue especially in the period of economy recession. Many of them face a crisis of a shortage

of subsidy or public support. Through this business model, it can solve non-profit art

organizations’ financial problems, but also support poor artists. In addition, it enables art to be

accessible to everyone.

6.3 Limitation and future research

This research was limited to investigation of large and non-profit art rental organization in the

Netherlands. As we discussed, there were also small and for-profit art rental organization,

which offer people different collections of artworks and business models. In addition, there

were also art rental museum that probably also had their own collections. In this sense, there

might be various actors (consumers) of those art rental organizations with different demand

on art and unlike underlying behavior.

The second limitation of the study was the sample selection for both types of research

methods. The sample for the quantitative research was not generated from various sources:

the art rental organization, the museum, and Internet. The problem was that the respondents

from the art rental organization might have different expectation and information on art rental

76

than the respondents from other sources. Therefore, it might be conducive to the research if

the sample could be collected from consumers of art rental organizations. Furthermore, the

sample for the qualitative research was collected from one subsection of SBK Amsterdam.

Although the interviewees have substantial experience and knowledge on the art organization

and their consumers, they are lack of information over other subsections of SBK Amsterdam.

Therefore, if in the further research wants to investigate the art market completely, more

personnel’s of various art rental organizations should be interviewed.

Art rental become an emerging phenomenon and its success attracts the attention of cultural

economists. There are flourishing art rental markets in addition to the Dutch art rental market

in the world. We believe that every art rental market has its own features and consumers.

Therefore, we suggest further research to investigate cultural value of art on other art rental

markets. And the findings should attribute to the study on the measurement of cultural value

of art.

77

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Appendix 1: The process of eliciting the consumer’s WTP through the CV method

The consumers’ WTP for renting a piece of artwork is the dependent variable. It is the WTP

per month rather than the WTP for the whole rental period. The research conducted a

contingent valuation (CV) method to elicit the consumers’ WTP for renting a piece of

artwork. According to Cuccia (2003:119, in Towse), the main steps of CV analysis are: the

sample selection, the description of the contingent market and the choice of technique for

eliciting WTP. Although it seems very simple, many problems can arise in the process of CV

method: the choice between WTA and WTP, the sample selection, and the design of the

questionnaire (Cuccia, 2003:120 in Towse). Since the research concerns the consumers’ WTP

rather WTA as stated in the main research question, therefore, the problems occured in the

sample selection and the design questionnaire. As revealed in the sampling of the research,

only 40 respondents were collected. This sample size is small, that is one of the disadvantages

of the sampling. Furthermore, it can be argued that the sample is not representative since only

a small part of the sample were collected from the art-rental galleries in Tilburg, so that

compared to the whole Dutch art-rental market, they are a small portion of the people who are

interested in renting pieces of artwork in the Netherlands. However, due to time and cost

constraints, it could not collect more respondents. After all, they were the people who are

interested in renting pieces of artworks in the Netherlands. Referring to the design of

questionnaire, as Cuccia (2003:121 in Towse) declares, there are three main elements of the

questionnaire to elicit a valid and reliable WTP: the description of the scenario, the type of

WTP question adopted, and the choice of payment vehicle to make individuals aware of the

budget constraint. In other words, the main problem will arise in these elements of the

questionnaire. In the following part, we describe the three main elements of the questionnaire

and also explain how to overcome the possible problems that may arise here.

Description of the scenario

The description of the scenario should be plausible and it plays an important role in eliciting

the consumers’ WTP for renting a piece of artwork. Using the Dutch contemporary-art rental

market as my empirical setting, w set up two scenarios under two types of “art-lease”

contract: “Huur (Rent)” contract and “Huur & Spaar (Rent and Save)” contract. Although the

survey was carried out at the art-rental galleries, the museum and on the online forums, the art

galleries under two scenarios were hypothetic art galleries. The descriptions for both

scenarios focused on four aspects: the artwork, the rental fee, the price category and the

renting period.

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First, the description of the work of art did not aim at describing a specific artwork and its

characteristics such as size, and material, since the artwork has a uniqueness characteristic

that is different from other consumption goods. Therefore, the description of an artwork

cannot embody the characteristics of every artwork available to rent at the hypothetic art

galleries. For the same reason, providing a visual aid of an artwork is not appropriate either.

Therefore, for the description of an artwork, we demonstrated that the hypothetic art galleries

had a collection of various contemporary artworks available to rent; and people can choose

any form of artwork including painting, printing, drawing, photograph, sculpture, and ceramic

at the hypothetic art galleries.

Second, two scenario’s, in particular, two types of “art lease” contracts, applied different

rental fees. To be more precise, the rental fee for an artwork under the “Huur & Spaar (Rent

& Save)” contract was more expensive than the rental fee for the artwork under the “Huur

(rent)” contract, since a part of the rental fee under the “Huur & Spaar (Rent & Save)”

contract was saved in the “Kooptegoed”, namely, in the “saving account”. And the money

saved in the account can be used to spend on buying any artwork at that hypothetic gallery in

the future. For both types of contracts, the rental fees of the artworks were corresponding to

the price groups (units of the price category: it will be explained in the third aspect) that their

values belonged to. In other words, the more expensive an artwork is, the more expensive its

rental fee is. And the prices of the artworks were based on their value assessed by the

contemporary art experts and in such case, every factor such as the size, material, and trend

that affects the values of the artworks have been considered, therefore, the prices of the

artworks properly reflect their values hypothetically.

Third, both scenarios applied the same price category of the artworks, although in practice

some art galleries apply different price categories under two types of contracts. As I

observed, the price range of the artworks available to rent under the “Huur” contract was

lower than the price range of the artworks available to rent under the “Huur & Spaar” contract

on the Dutch art rental market. For example, the art gallery “CBK Amsterdam” sets up € 2000

as the maximal value of the artworks available to rent under the “Huur” contract. In contrast,

the maximal value of the artworks available to rent under the “Huur & Spaar” contract is

above € 5000 (the website of CBK Amsterdam, 2010). The reason for this is probably

because that the Dutch art galleries assume that the consumers are not willing to rent an

artwork with a price above a border. For example, as mentioned above, the maximal price of

an artwork available to rent was € 2000 (the price category at CBK Amsterdam) under the

“Huur” contract. However, we considered that there would be people that are willing to pay a

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high rent for an expensive artwork (e.g., the price of the artwork is above € 5000) under the

“Huur” contract rather than under the “Huur & Spaar” contract. Therefore, the same price

category of the artwork in both scenario’s allowed the consumers (respondents) to rent a piece

of artwork as expensive as they demanded under the “Huur” contract hypothetically. In this

way, it can achieve the goal of exploring the consumers’ maximal WTP for renting artworks

under both rental contracts. The price category for both scenarios was divided into several

price groups. Since the number of price groups being divided and the price range within each

group will affect on eliciting the consumers’ WTP for renting artworks, Thus, the design of

the price category for both scenarios relied on the number of price groups being divided and

the price range within each group. As we observed, these two elements were various among

the Dutch contemporary-art rental galleries. And we assumed that they were dependent on the

supply of gallery’s artwork and the nature of art-rental organization, i.e., dependent on the

value of the supplied artworks, or on whether the art-rental organization is a non-profit or

profit organization. However, these two elements were not restricted by the gallery’s artwork

supply in the hypothetic scenarios. The principle of designing the hypothetic price category

was, on one hand, to keep the price category simple, so that it was easy for the consumers

(respondents) to choose their preferred price group(s); on the other hand, it was to design the

price category based on the practice of “art lease” on the Dutch art rental market. Therefore,

based on those conditions, five price groups within each price category were set up: >0500;

>5001500; >15003000; >30005000; >5000. This hypothetic price category was

comparable with the price categories at the largest contemporary-art rental gallery - SBK

Kunstuitleen Amsterdam (see appendix), and it had only five price groups, so that it was easy

for the consumers (respondents) to choose their preferred price group. In the survey, the

consumers (respondents) could only choose one price group that they are interested in and

state their WTP for it.

Finally, setting a minimal rental period for each scenario. Since the rental fee for renting

artworks under both contracts is based on a monthly rate in practice, the consumers’

(respondents’) WTP is also dependent on the minimal rental period: the longer the minimal

rental period is required, the more the consumers must pay for renting artworks. Therefore,

setting a minimal rental period for each scenario is important for eliciting the consumers’

(respondents’) WTP. Thus, I set “one month”, namely, the basic rental rate as the minimal

rental period for both scenarios.

On the other hand, although in most cases the art rental galleries set a maximal renting period

in the Netherlands, e.g. a maximal 1 year for the “Huur” contract; a maximal 5 years for the

“Huur & Spaar” contract (CBK Amsterdam), I set the maximal rental period for both

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scenarios as an open-ended question. Since setting a maximal rental period will place a bias

for eliciting WTP due to the fact that the longer the maximal rental period is required, the

more the consumers must pay for renting artworks. In this way, it could overcome this bias in

the research.

Type of WTP question adopted

After a plausible description of two scenario’s, the consumers (respondents) were aware of

the scenario’s and able to make a decision on their WTP for renting artworks. Nevertheless,

the validity and reliability of their WTP depended much on the type of WTP question that are

being adopted (cuccia, 2003 in Towse). The type of WTP question refers to the questioning

format for eliciting WTP for renting artworks: open-ended format or closed-ended format.

The questionnaire applied an open-ended questioning format rather than a closed-ended

questioning format, since the open-ended questioning format would better elicit the

consumers’ WTP for renting artworks. As Cuccia (2003: 122 in Towse) declares, the main

weakness in the closed-ended questioning format is statistical inefficiency. It would be the

main drawback, if the closed-ended questioning format had been applied in the survey. The

closed-ended format (dichotomous choice) requires only a yes-no answer form the respondent

on a stated amount for the item (Cuccia, 2003:121 in Towse). However, in the research, it was

difficult to define a stated amount of rental fees, because every art rental gallery sets its own

rental fees. In addition, since the survey was partly conducted among the consumers

(respondents) of the art rental galleries and the consumers (respondents) would be aware of

the actual rental fees at the galleries. Therefore, a stated amount of rental fees would be a bias

for eliciting the consumers’ (respondents’) WTP. For example, if the stated amount of rental

fees is deviated from the actual rental fees that the consumers are already aware of, they will

readily disagree with the stated amount of rental fees and make a “no” choice in the survey, in

such case, the consumer’s (respondent’s) WTP is lower than the stated WTP in the survey. As

a result, the survey would not elicit a valid and reliable consumers’ WTP for renting artworks.

In contrast, the open-ended questioning will allow the consumers (respondents) state their

WTP for renting artworks without a constraint.

Nevertheless, as Cuccia (2003: 121 in Towse) claims, respondents have no reference amount

and may prefer not to answer the question or to give such a different amount as to product a

high variation in the answers. In order to avoid this problem, the survey provided the

consumers (respondents) a reference amount, and this reference amount was based on the

practice of art least on the Dutch art rental market. As I observed, the rental fee under the

“Huur” contract is in general 1% of the maximum price in each price group, and the rental fee

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under the “Huur & Spaar” contract on the whole is 2% of the maximal price in each price

group. For example, under a “Huur” contract, the rental fee for the artworks belonging to the

price group (<0500) is €5 (1% €500); and under a “Huur & Spaar” contract, the rental fee

for the artworks belonging to the price group (<0500) is €10 (2% €500). So I provided

1% and 2% of the maximum price in each price group as a reference amount of rental fee to

the consumers (respondents) under the “Huur” and “Huur & Spaar” contract respectively, and

the consumers (respondents) could express their WTP based on the suggested percentage (1%

and 2%): it could be less or more than the suggested percentage. Logically, the consumers

(respondents) would be willing to pay less than the percentages that we suggest, so the survey

stated this disadvantage to the consumers (respondents) in advance and informed them why

their true WTP were important, i.e., their answers will help the art galleries improve their

service quality and artwork supply. In this way, we expected that a free-rider problem might

be prevented and a true WTP could be elicited in the research.

As mentioned above, since a part of the rental fee under the “Huur & Spaar” contract is saved

in the “Kooptegoed” and can be used to spend on buying any artwork at the hypothetic

gallery in the future, it raises another issue on how much percentage of the rental fee under

the “Huur & Spaar” contract should be saved in the “Kooptegoed”. As I observed, some art

rental galleries in the Netherlands put 100% of the rental fee into the “Kooptegoed” under the

“Huur & Spaar” contract, such as the art retnal gallery - SBK Kunstuitleen Amsterdam; while

most of art rental galleries in the Netherlands set a part of the rental fee, i.e., 50% or 70% into

the “Kooptegoed” under the “Huur & Spaar” contract. For example, SBK Kunstcentrum

Haarlem set 50% of the rental fee into the “Kooptegoed” under the “Huur & Spaar” contract.

Thus, on the Dutch art rental market, there is no standardized percentage of the rental fee

being saved into the “Kooptegoed”. In such cases, we used the open-ended questioning

format to ask how much percentage of the rental fee they request to save into the

“Kooptegoed”. In this way, on one hand, it could explore how much percentage of the rental

fee the consumers (respondents) request to save into the “Kooptegoed” without a constraint;

on the other hand, the open-ended questioning format for the issue would not set a bias to

elicit the consumers’ (respondents’) WTP for renting artworks under the “Huur & Spaar”

contract, since they could decide themselves how much percentage of the rental fee should be

saved into the “Kooptegoed”. However, the open-ended questioning format can produce a

high variation in the answers. The level of variation relies on whether the consumers are

aware of the percentage of the rental fee being saved in the “Kooptegoed” in practice. The

assumption is the more information about art lease that the consumer is aware of, the more

rational percentage he or she admits to save into the “Kooptegoed”. To be more precise, a

high variation of the percentage would be turned out from the consumers without or with less

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information about art lease in the Netherlands. For example, the branch of SBK Amsterdam

in Tilburg set 100% of the rental fee into the “Kooptegoed” under the “Huur & Spaar”

contract, the consumers (respondents) from this gallery would probably state 100% as the

percentage of the rental fee being saved into the “Kooptegoed” under the “Huur & Spaar”

contract. In addition, Since SBK Amsterdam implements only the “Huur & Spaar” contract

and it puts 100% of the rental fee into the “Kooptegoed”. Therefore, the rental fee in general

is cheaper than the reference amount of rental fee in the hypothetical scenarios of the survey.

For example, €5 rental fee for the artworks belonging to the price group <0500 under the

“Huur & Spaar” contract; in contrast, €10 rental fee (reference price) for the artworks

belonging to the same price group under the same contract in the hypothetical scenario of the

survey. Consequently, the experienced consumers (respondents) who have already gotten the

information about the market rental price will state their WTP more rationally than the non-

experienced consumers.

Choice of payment vehicle

The payment vehicle for renting artworks was consumer’s income. It was consistent with the

practice of art lease on the Dutch rental market. So there was no comparison of consumer’s

WTP under different payment vehicles.

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Appendix 2: The process of the data collection for the factors

Artwork-specific features

The form of artwork

The research examined the level of preference for each form of artwork to the consumers

(respondents), since I assumed that there was a positive correlation between the level of

preference for a form to a consumer (respondent) and his or her WTP for renting the artwork

with such form. As we have pointed out, there are 6 types of art form available to rent on the

Dutch contemporary-art rental market: painting, printing, drawing, photograph, sculpture, and

ceramic. We coded them by using a dummy variable: i.e., 1-painting, 0-no painting, similarly,

the rest of them except ceramic is coded in the same way. We first explore the percentage of

each form among all types of form that the respondents prefer to rent and the percentage of

each form is compared with each other for examining the level of consumers’ preference for

each form on the Dutch contemporary art rental market: the more the percentage of a form

that the respondents prefer to rent, the higher the level of preference for that form. In contrast,

the less the percentage of a form, the lower the level of preference for that form. After that,

we calculate the consumers’ average WTP for renting the artworks of each type of art form

and compare the average WTP’s with each other. In this way, it can examine whether there is

a positive correlation between the level of preference for an art form to the consumers

(respondents) and their average WTP for renting the artworks of such form.

The size of artwork

It has been found that the price of artwork varies according to the size (Sagot-Duvauroux,

2003 in Towse; Rengers & Velthuis, 2002). It can be explained by the fact that the size of an

artwork can affect its cultural value, i.e., in particular, its aesthetic value (Sagot-Duvauroux,

2003 in Towse). According to the basic assumption, the cultural value of an artwork

determines consumers’ WTP for renting it. Therefore, the size of an artwork can also affect

consumers’ WTP for renting it. However, as mentioned already, price differences in the body

of artwork of different artists are not explained by differences in size of these artworks

(Rengers & Velthuis, 2002:23). To the research, this point implies that the size of artwork can

only explain variance on the aesthetic value of artworks, but not on the level of artists,

namely, on the social value of artwork. Hence, to capture the influence of the size of artwork

on the consumers’ WTP for renting artworks, we examined the size of artwork that the

consumers are interested in. To be more precise, in the survey, we asked the respondents to

choose if they have a size requirement by using a dummy variable: 1-yes, 0-no.

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Artist-related factor

The reputation of artist

As discussed in the literature review, the reputation of an artist mainly depends on the artist’s

achievement and it needs time to be constructed. In most cases, it is evaluated by art experts.

Many studies have examined the connection between the reputation of an artist and the price

of his or her artwork. The empirical evidence is consistent: there is a positive effect of an

artist reputation on the price of his or her artwork (e.g., Schonfeld & Reinstaller, 2007;

Rengers & Velthuis, 2002). However, there is seldom a research to explore the correlation

between an artist’s reputation and consumers’ WTP for renting his or her artworks. As we

considered, an artist’s reputation also affects the consumers’ WTP for renting his or her

artworks. In fact, this consideration is an extension of our basic assumption: the level of

cultural value of an artwork that a consumer is interested in determines his or her WTP for

renting the artwork. One component of the cultural value of an artwork is its social value. As

noted before, the social value of an artwork is dependent on the reputation of its creator

(artist) in the research. Just as the statement that we have made to examine the social value of

an artwork that the consumers are interested in: people are interested in renting an artwork

because the artwork is created by a famous artist or an artist with a good reputation.

Therefore, an artist’s reputation can positively affect the consumers’ WTP for renting his or

her artworks. For the research, we have already set up a statement about the social value of

artwork to examine the level of social value of an artwork that the respondents are interested

in. In order to avoid overlapping, we used the data on the level of social value of an artwork

that the consumers are interested in to examine whether the reputation of artist, can positively

affect the consumers’ WTP for renting the artwork. In such cases, we coded reputation of

artist by using an ordinal variable, whose value ranges from 1 to 5.

The socio-economic status of consumers

Age, Gender, Education Level and Type, Professional Status and Type, Number of

Owned Artworks

As Cuccia (2003:121 in Towse) considers, some questions regarding the socio-economic

characteristics of respondent are also required in the survey of CV method. And as we

assumed, the socio-economic characteristics related to the arts were positively correlated to

the consumers’ WTP. Therefore, we focused on the socio-economic characteristics related to

the arts and these socio-economic characteristics as we defined were: Education related to the

arts (Education Type), occupation related to the arts (Occupation Type), and number of own

artwork. We coded the type of education and the type of occupation by using a dummy

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variable (Education Type and Occupation Type): the dummy variable has a value of 1 if the

education and occupation are classified as related to the arts and a value of 0 if otherwise.

And we coded number of own artwork (ARTWORKS) by using a ordinal variable: the

ordinal variable has a value of 0 if the respondent does not any artwork, a value of 1 if the

respondent has one artwork, a value of 2 if the respondent has two artworks, and a value of 3

if the respondents has more than two artworks.

In addition to the socio-economic characteristics related to the arts, we also examined some

other socio-economic characteristics: age, gender, education level, and professional status. To

be more precise, the respondent’s age was asked in the form of “year of birth” and it was

converted into age afterward. Since asking the “year of birth” is an indirect way of inquiring

“age”. In the case that some respondents do not like to give their age in the survey, this way

of questioning can increase response rate. For the research, age is a ratio variable. I coded

gender by using a dummy variable: 1-female, 2-male. “Education level” was based on the

Dutch education system and it included: Compulsory Education, MBO, HBO Bachelor,

University Bachelor, HBO Master, University Master, PHD. We coded education level by

using an ordinal variable: 1-Compulsory Education, 2-MBO, 3-HBO Bachelor, 4-University

Bachelor, 5-HBO Master, 6-University Master, 7-PHD. Finally, we coded professional status

by using a nominal variable: 1-Civil Servant, 2-Company Employee, 3-Self Employed, 4-

Full-Time Student, 5-Retired, 6-Housewife/man, 7-No Job, 8-Looking for a Job.

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Appendix 3: The questionnaire

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Appendix 4: Graphs and tables of data analysis

Graph 4.1: The average level of each component of cultural value by the respondents

Graph 4.2: Sum (percentage) of the preferred forms of artwork

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Graph 4.3: Respondents divided by size requirement

Table 4.1: Frequency table of price groups of artwork under the “Huur” contract

Table 4.2: Frequency table of price groups of artwork under the “Huur & Spaar” contract

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Graph 4.4: Education level of respondents

Graph 4.5: Graph 4.3: education level divided by type of respondents

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Graph 4.6: Professional status of respondents

Graph 4.7: Professional status divided by types of respondents

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Graph 4.8: Age group of respondents

Graph 4.9: age group divided by types of respondents

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Graph 5.0: Boxplot of the respondents’ WTPs under the “Huur” contract

Graph 5.1: Boxplot of the respondents’ WTPs under the “Huur & Spaar” contract

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Graph 5.2: Comparison the WTP between non-experienced and experienced respondents under both types of contracts

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