Organizational and Epistemic Change: The Growth of the Art Investment Industry

Abstract

This case shows how an emergent knowledge community is necessary to support and legitimate the efforts of entrepreneurs in new areas of financial investment, due to strong, institutionalized expectations about the rational evaluation and monitoring of financial assets. Using the concept of epistemic cultures to complement an organizational field narrative, this paper examines the development of artwork as a recognizable financial investment category. Despite a long history of attention to art investment, the legitimacy of art as an asset is still emerging. Legitimacy questions have decreased since the 1960s due to the growth of an epistemic culture around art investing, facilitated by new market actors who met the need of professional investors for transparency and accountability. Technical knowledge about art investments came from economists, art price service providers, art market analysts, and others. We also see the development of a more practical knowledge about how best to structure the investment and to profit from art investment. The growth of knowledge – through a series of experiments and failures – around the properties and optimal structure of art investments was just as important for the emergence of the industry as having investors who were willing to enter the new area.