Market Responses to Changing Legal Standards: Evidence from Antiquities Auctions

Abstract

This article examines how changing legal standards impact supply and demand in a market where some objects are potentially tainted or illegal. Using novel disaggregated data on market transactions, we are able to quantify changes in market activity before and after major court decisions. Our evidence comes from the antiquities market, where records of historical ownership (provenance) determine whether an object may be legally bought and sold. The analysis starts with a model predicting how provenance affects an object's value, and how changes in government enforcement differentially impact the upper and lower tails of the quality distribution of objects. We test the model using a new data set of auction sales between 1996 and 2014, which allows us to proxy for the probability that an object can be sold legally. The results show that auction trends changed sharply at the time of landmark legal decisions: the proportion of objects with legitimate provenance have increased and so have their prices. They also show that this is especially true for rare high quality objects, in ways predicted by the model. Our analysis implies that legal standards resulting from court cases, rather than the mere existence of laws or treaties, may be essential for shaping market behavior. Finally, we discuss our findings in light of public policy concerns that the antiquities black market may fund terror groups and dictatorial governments.