Market Responses to Court Rulings: Evidence from Antiquities Auctions

Abstract

Though a vast literature considers whether the enactment of laws and regulations impacts markets, very little attention has been paid to the ability of courts to have such an effect. This article fills this gap by providing evidence that court decisions can bring to bear existing legal standards and can have significant effects on market behavior, especially if they convey credible commitments to enforce sanctions. We show that the outcome of certain court decisions can reduce illicit trade. By analyzing novel disaggregated data of antiquities sold at auction in the past 20 years, our results indicate that as a result of punitive court rulings the share of legitimate items (measured by their ownership history, or “provenance”) and the price premium paid for such items both increased. In addition, we show that standard assumptions behind repeat sales indices fail to hold as buyers' tastes change.

Keywords: Law and Economics, Black Market, Litigation, Art Investment, Public Policy

JEL Classification: D44, K33, K41, Z1