Tuesday, August 05, 2008

The Chicago School of Economics and the Arts: A Possible Use for Contingent Valuation

Over the last month, two University of Chicago economists have had their picture in the New York Times Arts Section. As a Chicago graduate, I would have thought that this would be a low probability set of events. First Lars Hansen made his debut and yesterday there was a long profile of David Galenson in the New York Times Art Section . I now look forward to a future profile of Derek Neal and Casey Mulligan discussing which artists have been influential in shaping their world views.

In the case of the Galenson profile, the Times focuses on his novel approach of how to rank which artists do the best work. Given that art is an asset that rarely trades (think of the Mona Lisa), how do we value assets for which there are no observed market prices? Galenson suggests that he can rank such assets by using the number of times different pieces of art are discussed in leading art textbooks. This is creative but permit me to propose an alternative strategy.

The whole field of contingent valuation is devoted to valuing non-market goods such as the Grand Canyon or a pristine Prince William Sound.
see http://en.wikipedia.org/wiki/Contingent_valuation

In a nutshell, you would ask people what their valuation of different pieces of art are. While I wouldn't take the overall level of their rankings seriously by sorting their stated valuations you could form relative rankings of which pieces of art are best versus okay.

Here is one serious issue ; Is art a private good or a public good? If Bill Gates buys the Mona Lisa and hangs it in his private house, only him an his friends see it; while if it is in a museum then many people at the same time can enjoy it.

If we rank art that will hung in museums, then Galenson should sample a representative sample and sum their individual stated willingness to pay to look at each work and then sort this from highest to lowest.

I hope that David invites me to be his co-author on this project. I'm sure that we would get on great.