Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Wednesday, May 25, 2005

Droit de Suite, part II

How much would you be willing to pay today for a 1% chance of receiving $100,000 in 20 years [assume a relevant interest rate of 5% per year]?

If you are risk-neutral, probably something less than or equal to $377, which is the approximate present expected value of a 1% chance of receiving $100,000 in 20 years at 5%.
Now suppose we tell you that instead of receiving $100,000 in 20 years, you will receive only $90,000, with $10,000 going to some amorphous form commonly referred to as "gubmnt". The present expected value of that purchase would be only $339.30. In other words, you would be willing to pay $37.70 less today if you thought you would receive $10,000 less in 20 years.

That is what Droit de Suite does by guaranteeing that original artists are able to collect some of the beneficial risk of capital gains but not contribute to the detrimental risk of capital losses in their art works. The only difference is that the payment would go to an original artist instead of to the gubmnt. And that difference may be important for the purchasers of art.

Here is something I wrote earlier about Droit de Suite. Be sure to read the second comment, quoting Sir Simon Rattle:

He also slammed the 'anything goes' attitude of British post-modernism and denounced leading Brit Art bratpack figures Damien Hirst and Tracy Emin. In comments that have provoked an angry response from his targets, Rattle added: 'That is the problem with Brit Art, with artists like Damien Hirst, Tracy Emin and the others. I believe that much of this English, very biographically-oriented art is bullshit.' "
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