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Thursday, October 19, 2006

Sticking Elbows In a Picasso

Joseph Sax wrote an interesting book in the not-too-distant past about property rights and protecting cultural works (Playing Darts With a Rembrandt).  I'm not sure quite how this story fits in, but it has to say something.  Steve Wynn, who loves collecting art and displaying it in his casinos, tore a coin-sized hole in a Picasso painting (The Dream) worth $139 million.  The reason: Wynn is a klutz.  He was showing off the painting and gesticulating with his hands right next to it, notwithstanding an eye problem that impairs his peripheral vision.  Elbow in painting, bye-bye tens of millions of dollars.  Wynn says he'll repair the painting.

Posted by Avi Bell on October 19, 2006 at 01:25 PM in Property | Permalink

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I blogged about this story over at ContractsProf, because apparently before the accident, Wynn had sold the painting for $139 million. He willingly rescinded the sale and has said he would fix it, though, so not much of a contracts issue there... I entitled my post "The Right to Destroy" borrowing from Lior Strahilevitz's eponymously named title.

Yet, although these are interesting facts, I'm not sure there is really an interesting legal issue here (despite all of our best efforts to create one.) Kate may have come up with the most interesting angle, with her takings argument...

Posted by: Miriam Cherry | Oct 22, 2006 7:05:14 PM

"Suppose the entire world outside Wynn values that painting at $50. (That’s why the entire world doesn’t buy it from Wynn.)"

I don't think that's right. The entire world may appreciate the existence of the piece at, say, 500 dollars. But, they don't have to buy it, because they can "free-ride" off of Wynn's taking care of the piece. Why pay for something when you are delighted at its mere existence, and which you believe is in delicate hands?

Of course, that the piece is in the hands of a blind man changes thigns a bit. But even then, the statement that "(That’s why the entire world doesn’t buy it from Wynn.)" doesn't ring true, namely because of transaction costs. Perhaps there are 1000 people, each willing to pay a dollar to keep the painting in existence (and therefore could buy it from Wynn at, say, any price between 101 and 999). That does not mean the transaction will take place-- first, the 1000 might not be able to contract, or, more likely, if I were one of the 1000, I would just hope the other 999 figure out a way to buy it. If all I care about is its existence, I won't care about being a nominal owner-- all I want is the piece's preservation, and surely won't contribute 1 dollar. Market failure/free riding problem, no? I'm sure there are fixes sometimes (e.g. the government preserves various historical documents which have "existence" value), but I'm hestitant to concede that there cannot be an overall utility loss whenever a property's owner elects to set it to fire.

That all being said, I never understood art and am happy to view the Mona Lisa on my computer screen.

Posted by: andy | Oct 20, 2006 11:11:35 AM

Avi, I see you've mentioned "existence value" above. This has been a contested concept in biodiversity valuation for some time. I have a small account of the matter toward the end of this piece:

http://research.yale.edu/lawmeme/yjolt/modules.php?name=News&file=article&sid=42

Posted by: Frank | Oct 20, 2006 9:30:40 AM

Avi, the precautions calculations have to be applied to the value established by the highest valuator, not to the sum of values of several different valuators. Phil Fetishist only wants $20 worth of precautions, and Wynn wants $100, so we'll get enough private incentives for precautions. Nobody wants $120 worth of precautions.

Posted by: Kate Litvak | Oct 20, 2006 12:24:45 AM

Kate, thanks for the clarifying remarks; let me try to clarify what I think you are overlooking. Assume Wynn values it at $100 and is not a fetishist who gets existence value. Everyone else in society values the painting at between $50 and $99, including Phil Fetishist. However, Phil Fetishist derives $20 just knowing the painting exists, in addition to the $50 he would attach to ownership/possession. Phil will not buy the painting. However, in Wynn's hands, the painting is worth $120 to society, not $100. Thus, there is a possibility in this state of the world that Wynn will take insufficient precautions.

Posted by: Avi | Oct 19, 2006 11:55:48 PM

Avi: I actually didn’t assume away the fetishists; to the contrary, I assumed that there are people other than Wynn who derive utility from knowing that the painting exists somewhere. What I want to do is determine whether Wynn has enough incentives to protect the painting without additional subsidy. Here, it seems meaningless to add up Wynn’s and non-Wynn’s valuations. Instead, we need to compare Wynn’s valuations with valuations of everyone other than Wynn.

Suppose Wynn values the painting at $100. Suppose the entire world outside Wynn values that painting at $50. (That’s why the entire world doesn’t buy it from Wynn.) Suppose further than it takes $1 to create precautions that reduce expected harm to painting by $10; suppose further that there is a linear relationship between harm and precautions, so that $2 worth of precautions reduce harm to painting by $20, etc. Under these assumptions, for Wynn, it is optimal to spend $10 on precautions; for everyone other than Wynn, it’s optimal to spend only $5. So, Wynn has enough incentives to protect the painting; from everyone else’s perspective, he overprotects; but it’s his own money, so who cares. We don't need to add Wynn's valuation and everyone else's; the optimal amount of precautions is not $15 here, but only $10.

Now, suppose Wynn still values the painting at $100, but everyone else values it at $150. Then, Wynn would only take $10 worth of precautions, while everyone else would like him to take $15 worth of precautions. The solution is to give him $5 to increase precautions (assuming his precautions behavior can be monitored). Or else to force him to take $5 worth of precautions by threatening to take away the painting. Or tax him $10 if he doesn’t spend $5 on precautions. Or tell him that if harm happens, we’ll fine him an amount that’s enough to induce him to take $15 worth of precautions. Or something of that sort. But here again, the optimal amount of precautions is not $25.

This, of course, makes tons of other assumptions that I am not mentioning. I am only trying to convey the basic idea without claiming it to be the final word. I’m also happy to take corrections, since this stuff is just the first thing that came to my mind right now. My point is: there is no reason to add up Wynn’s and non-Wynn’s valuations for the purposes of determining optimal precautions. The useful comparison is Wynn versus everyone other than Wynn. And, again, in doing so, we are not assigning the value of zero to everyone else’s feelings about the painting.

Posted by: Kate Litvak | Oct 19, 2006 11:36:24 PM

Kate, I disagree. I think the interesting thing about artworks like this is that the fetishists out there (as Frank describes them) derive utility from the existence of the object even in someone else's hands. That means that there is some social value out there not included in Wynn's utility function. I don't see what we accomplish by excluding Wynn from the social utility function.

The reason I fear it may not be a very interesting problem is that there may not be many fetishists or they may not derive that much value from mere existence (as I think Frank argues) or that nothing interesting happens way up high at that marginal difference in value. But, as I said, I'm still mulling it over.

Posted by: Avi | Oct 19, 2006 10:57:38 PM

Call me a philistine, but I'm not too keen on any fetishization of the art object in itself. I don't care if Wynn punched a whole in his Lear Jet or his Picasso. As long as the image has been preserved adequately via high-tech photography or skilled reproduction, I don't think we need go along with whatever "auratic quality" (in Benjamin's terms) led Wynn (or society) to value it at such a high level. (I'm mystified by the high value that first edition books fetch.)

I think the real tragedy would be if private collectors like Wynn were able to keep people away from the reproductions. I sometimes worry that licensing groups like Corbis might lead to such a "lockdown"....and massive copyright "civil disobedience" on YouTube is one indication of the public's displeasure with it.

Posted by: Frank | Oct 19, 2006 10:14:08 PM

Avi: the only way to make this problem interesting is not to include Wynn into the definition of "society", i.e., to compare the valuation of the painting by Wynn with the valuation by everyone else but Wynn.

Posted by: Kate Litvak | Oct 19, 2006 9:42:17 PM

I think it's fairly obvious that society values the painting more than Wynn does. Society values the painting (in its current state of ownership) at value to Wynn + value to everyone else in society while the painting remains in Wynn's hands. I think it's fairly obvious that the painting owned by Wynn produces net positive externalities. Hence ...

Now that doesn't contradict the possibility that Wynn is the potential owner that most highly values the object.

Which is what makes for the interesting property rights question. Maybe.

Incidentally, besides nationalization and subsidy, there are other possibilities. See, eg, Penn Central.

Posted by: Avi | Oct 19, 2006 8:06:01 PM

I fail to see anything amusing in this story. A man with disability accidentally damages a valuable object. Ha-ha. And no, the fact that a man ended up damaging a valuable object does not mean that he hasn’t taken adequate precautions. The optimal rate of accidents is not zero.

Here is how you can make this story interesting. You’ll need to argue that the society values the painting at more than the unfortunate owner does (not clear why this should necessarily be the case; how this could be possibly measured; and why in such case the painting is still sitting at the hands of the lower valuator – if the current owner isn’t willing to sell, presumably, he values the painting more highly than anyone who is offering money…). But fine, let’s make this unwarranted assumption. Then, you can argue that because of this discrepancy in valuations, the amount of precautions that are individually optimal is not socially optimal.

To that, the answer seems to be that the society should pay the owner some amount to cover the costs of additional precautions that are, from the owner’s point of view, excessive. Alternatively, the society can just nationalize the painting and hand it over to another private party, which, as the Supremes have lately informed us, is perfectly constitutional.

Posted by: Kate Litvak | Oct 19, 2006 7:11:15 PM

I heard of a law firm where a famed Kenneth Noland painting was accidentally bumped into by a a janitor's wet mop, leaving a big stain. No one noticed. RAther like that modern art exhibit where somebody just left a cafeteria tray on a pedestal and titled it: "Hunger".

Posted by: APFP | Oct 19, 2006 6:23:10 PM

Of course it is not my intention to make fun of Wynn's disability. Nor would I say that Wynn deliberately destroyed the Picasso for fun (why would he?). I would certainly agree that sympathy is the more appropriate emotion here than contempt.

What's interesting here is that Wynn's disability predated the incident, and he could have taken precautions not to gesticulate when a $100+ million painting was literally in his blind spot. The curious thing is why Wynn's self-interest -- his obvious pride in the piece as well as the millions of dollars it was worth to him -- didn't lead him to exercise ordinary caution. Maybe it doesn't tell us anything interesting about property rights and maybe it does ... I'm still thinking about it.

Posted by: Avi | Oct 19, 2006 4:47:22 PM

Respectfully, Professor Bell, I think you are being unfair. This wasn't some rich magnate destroying a Picasso because he could–he didn't stick the painting in a skeet trap, yell "pull!", and blast away with a 12 gauge. Steve Wynn has retinitis pigmentosa, a degenerative retinal disease which affects peripheral vision. If you take a look at http://www.blindness.org/content.asp?id=45 , you will see a picture that illustrates a severe case of retinitis pigmentosa: it is like looking through a straw. Mr. Wynn's case apparently is not at this level, but this isn't like Mel Gibson trying to excuse his anti-semitism by saying he was drunk. Mr. Wynn's explanation is reasonable and he deserves our sympathy, not our contempt.

Posted by: Jed Sorokin-Altmann | Oct 19, 2006 3:24:16 PM

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