Economia 4.2 (2004) 1-35
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The Economics of Latin American Art:
Creativity Patterns and Rates of Return
The Latin American countries are famously known for their economic and political travails. Most of the region has a long history of authoritarian politicians, successive coups d'état, galloping inflation, and financial crises. The literature attempting to explain Latin America's political and economic developments is voluminous and covers most angles of the region's social problems.
Politics and economics, however, are not the only aspects of the Latin American nations that have attracted the attention of intellectuals from around the world. Indeed, there has traditionally been keen interest in Latin American literary and artistic accomplishments. For example, the works of novelists Gabriel García Márquez and Mario Vargas Llosa and of poets Pablo Neruda and Octavio Paz have been exhaustively analyzed by critics and academics, as have the works of artists Fernando Botero, Frida Kahlo, and Diego Rivera.
Studies on Latin American economic and artistic developments have proceeded along separate paths. Very few economists, if any, have used economic methods and data to analyze issues related to Latin American literature or arts. And only a few authors—mostly of a Marxist persuasion—have attempted to relate the creative process to the region's economic developments or prospects.
In this paper I use a large data set and economic methods to analyze two rather different aspects of the Latin American arts: namely, the nature of the artistic creative process and Latin American art as an investment. I am [End Page 1] particularly interested in using data on art auctions to understand the relation between artists' age and the evolution of their work. I also use these data to investigate the historical rates of return obtained by buyers of Latin American art. This research is part of a new and growing field on the economics of art and cultural economics, whose pioneers include Orley Ashenfelter, William Baumol, Richard Caves, Bruno Frey, David Galenson, and Victor Ginsburgh.1
Latin American art auctions have a number of advantages as a subject of study. First, regular and dedicated international auctions for Latin American art have been held since 1979. Although Sotheby's and Christie's dominate the market, a number of smaller houses are quite active, in both Europe and the United States. Second, museum activity in this area of collecting is still limited. Thus—in contrast with American artists or the impressionists, for example—the market is not subject to the bias introduced by big museums, which tend to buy and retire some of the best works from the market. Third, the market for many of the most important Latin American artists is also quite liquid, with a large number of works by many of the masters being sold each year.
The rest of the paper is organized as follows. The next section discusses the main issues addressed in this paper and provides a brief review of the literature on the economics of art. I then describe the data set (the artists included in this study are listed in the appendix). A subsequent section is devoted to analyzing the creative process. The point of departure is Galenson's pioneering work on creativity patterns.2 The paper then addresses Latin American art as an investment. Here, I discuss methodological issues and calculate hedonic price indexes to compute the rates of return of different art portfolios. The concluding section discusses directions for future research.
The Issues and the Literature
Over the years, a small number of economists have analyzed problems related to cultural issues. Some of the most important works in this field [End Page 2] deal with the economics of museums, artistic competitions, artists and stardom, art auctions, investing in the arts, and, more recently, aspects of the creative process. Although the economics of art has never made it into the mainstream, many of the authors involved in it are quite prominent in other fields.3
The Creative Process of Artists
In a series of recent works, David Galenson uses...