The Droit De Suite Dilemma (And Why It’s Just A Bad Idea)

15 january 2013

Just as droit de suite – the requirement that artists receive royalties on secondary sales of their work – is about to go into effect in the UK, the US Congress has introduced its own droit de suite bill, which would require payment of a seven percent fee on resales above $10,000.  As described in The Art Newspaper, “The Equity for Visual Artists Act of 2011, would set aside 7% of the price for works resold for more than $10,000 at major auction houses, such as Christie’s and Sotheby’s, with half the proceeds going to the artists and half to non-profit art museums.”

Good news? Or bad?

It’s hard to argue with the fairness of the concept itself.  I recall dining with the descendant of one major 19^th-century artist in the late eighties, the night after a work by his artist ancestor (by two generations) broke all previous records for a price paid for any work of art.  A struggling artist himself, my dinner companion raged, understandably, that he was forced to seek subsidies and grants to pursue his work, while the owner of his relative’s painting was about to take home a check for many tens of millions of dollars, simply for having had the talent to buy the work and sell it.  A little bit of that thrown his way, he said, might have been a nice gesture.

But is droit de suite really in the artists’ favor?

British dealers are currently concerned that the impending law in their country will send art sales abroad to countries that do not have such a regulation, which is very likely. (Such has been the case elsewhere, after all.)  It is also entirely possible that such a law, particularly in the US, will send buyers scurrying from the booming contemporary art market to focus on early 20^th-century masters, Impressionists, Old Masters, or even early American art.   The strain of adding royalty payments to prices would, after all, be considerable in a market where Picassos sell for $140 million and up, and even works by living artists have gone over the $30 million mark.  To realize even a minor profit would require pushing prices up ten percent for each resale; add the auction house or dealer commissions, and you’re soon nearing a 50 percent increase every time, making your $140 million painting a $200 million one in order to net only a 3 percent profit – less than $5 million –  for yourself. It’s not a terrifically inviting proposition.

The bigger problem is what this means for younger and mid-career artists. Even those who buy solely for the love of art and excitement about a specific artwork tend, even in the backs of their minds, to consider the possible future resale value of their collections.   With the likely profits diminished, younger collectors, and collectors of younger artists, will be less motivated to buy, however idealistically we may wish to see their passion for art for art’s sake.

But it is scholarship which potentially can suffer the most.  Certainly sales will be made, ownerships transferred – the question is more one of how public such transfers will be, and how many will actually leave a paper trail.  The result: provenance, one of the most significant factors in valuing and in researching a work of art, will often be lost. And scholars researching an artist’s oeuvre for whatever reason – particularly for catalogues raisonnés – would find themselves hitting frequent dead ends in their searches for important works (or even less-important ones) to examine and to document.  Absent an entry in a catalogue raisonné, a specific work’s authenticity then becomes subject to question – and its value lowered. Curators hoping to include a painting in an exhibition would have a harder time finding it.

And so on.

In fact, a 2010 study by C. Banternghansa at the University of Chicago and K. Graddy at Brandeis pointed to past research that indicated much the same thing:

Bolch et. al. (1978) present one of the first economic models of the DDS, a straightforward model that demonstrates that an artist who sells his work will have less discounted compensation with the DDS than without; they conclude that a likely impact of the statute will be to reduce the original bid prices for art works once buyers adjust to the existence of the resale royalty. Filer (1984) comes to an identical conclusion: the DDS reallocates property rights: thus, the value of a work of art without full property rights is less than the value with full rights. Karp and Perloff (1992) also develop an economic model of the DDS. While they present both benefits and drawbacks of such a scheme, overall they conclude that young artists (and dealers) may be harmed by a resale royalty because buyers will reduce their willingness to pay for a work of art, if they know that they must pay a royalty on resale. With the exception of Solow (1998), most recent economists have concurred with the results of the models of Bolch et. al (1978) and Karp and Perloff (1992).   As Ginsburgh […] details, economic theory predicts the DDS should reduce the competitiveness of markets where it is implemented (relative to markets without the DDS) and also reduce prices obtained by the artist on the original sale.

In the end, in other words, the artists still wouldn’t end up with all the money that they may be counting on. And the rest of us may well end up with a lot less art.  I’m not sure I see the good in that.