Auction guarantees for works of art

- We analyze the cases of third-party guarantees and in-house guarantees.
- The rules of third-party guarantees differ at Christie's and Sotheby's.
- More expensive items are more likely to have guarantees.
- The guarantee has little effect on price, once value is taken into account.

This paper addresses the question of whether auction guarantees change the bidding environment and whether they cause a change in price once the value of an item is taken into account. We analyze both the cases of third-party guarantees and in-house guarantees. We use two datasets: one of Christie's and Sotheby's Contemporary and Impressionist Evening Sales from January 2010 to February 2012 and another larger dataset consisting of all items auctioned at Christie's from 2001 to May 2011. While more expensive items are more likely to have guarantees, we find little empirical evidence to suggest an effect on price from the guarantee itself once the value of the item is taken into account.We thank Chunrong Ai, Orley Ashenfelter, Stephen Brown, Geraldine David, Paul Milgrom, Kim Oosterlinck, and Rachel Pownall for valued comments and Adam Narkiewicz, Alberto Ortega, and Wenche Wang for assistance in data collection.