In the months since Michael Witmer bought a painting by 19th-century French artist Gustave Courbet, the Greenwich, Connecticut, art adviser has seen prices for Courbet’s work rise dramatically. A Courbet offered at Sotheby’s in the fall went for $2.5 million—seven times its estimate.

The reason: A Courbet retrospective opens this month at New York City’s Metropolitan Museum of Art. It’s an example of what’s known in the art world as the exhibition effect, which dealers leverage by buying art in advance of a major show and selling it into the buzz.

Expect it times ten with the Art Institute of Chicago’s undertaking of a sweeping reorganization of its collection, attempting to define which artists mattered most in 20th-century art. Who makes the cut and gains placement in the museum’s new $300 million Modern Wing, designed by star architect Renzo Piano, will have repercussions far beyond Chicago.

During the past decade, the art market has been exceptionally volatile, with artists becoming top performers at auction one year, turning virtually unsellable a few years later, then coming back in vogue again. Consider Julian Schnabel, an art superstar of the ’80s, who saw one of his black-velvet Maria Callas paintings zoom to $319,000 at Sotheby’s in 1992, only to be priced at a paltry $70,000 12 years later. He came back last month with a successful exhibition in New York, on the heels of an Oscar nod for his direction of The Diving Bell and the Butterfly.

Given how fickle, even ruthless, the market can be, major museum shows are closely watched for the endorsements they bestow on artists—next month’s Whitney Museum of American Art Biennial is a veritable oracle of Delphi as far as some contemporary-art collectors are concerned. Such shows make a case that the “artist has a place in art history,” Michael Witmer says. Sometimes after a successful show of an artist’s work, “everyone wants one.”

But opportunities to canonize artists on the scale of the Art Institute’s Modern Wing don’t come around very often. The Renzo Piano project will reorganize the entire museum by 2010 and increase its display space by more than one-third. The Institute’s curators are currently deciding which artists’ works will be on permanent display, and who will get the most space and the most prominent locations.

The project echoes the Museum of Modern Art’s move into a new building in 2004, which affected the art market almost overnight. A work by Martin Kippenberger, a German conceptual artist, went on the block the week after MOMA showed trustees the new building, where a Kippenberger sculpture sat adjacent to a Warhol and near a Johns. The piece sold for $612,800—nearly triple what was expected.  

The Art Institute’s reinstallation, however, is more ambitious. MOMA’s rehanging of its collection “dodged the issues,” says James Rondeau, curator and chair of the Institute’s department of contemporary art, who is overseeing the installation of 20th-century art next year. (Rondeau’s blockbuster “Jasper Johns: Gray” opened at the Metropolitan yesterday.) MOMA arranged all the art in its collection chronologically, up to 1970, thereby linking van Gogh to Picasso to Pollock, while more recent work was installed in temporary galleries. Chicago, on the other hand, is writing a history of art through this decade. A huge mock-up of the Modern Wing sits in Rondeau’s office, and as the building takes shape, he and other staffers, along with Piano’s associates, are moving tiny pictures around on the walls with increasing fervor.

The new galleries will offer surprises, anointing some artists who are barely known today or whose work is quite inexpensive. Luc Tuymans, a Belgian-born painter virtually unknown in the U.S., is “an artist we’re making a deep commitment to,” says James Cuno, director of the Art Institute. The museum is also focusing attention on a group of local ’60s artists, the so-called Chicago Imagists, whose ranks included Ed Paschke—known for his acidic take on pop art—and Jim Nutt. By and large, these artists have not participated in the run-up in art prices: A Paschke painting sold at auction last year for $31,200.

As for superstars, three galleries will be devoted to conceptual artist Bruce Nauman, including a six-camera installation of his Clown Torture video. Pioneer sculptor Eva Hesse, whose works rarely crack seven figures at auction, gets her own room, as does Jenny Holzer; Francis Bacon, however, whose works have brought in excess of $50 million, doesn’t. Ellsworth Kelly is given prominence, as is Robert Gober. Gerhard Richter is deemed more important than his countryman and contemporary Sigmar Polke. (The Art Institute owns 20 works by Richter.) What’s missing? Any Latin American contemporary art, which effectively means that the museum considers it, at least for now, ancillary to art history.

Think studying museum exhibitions with an eye toward the market malignantly blurs the line between art and commerce? Michael Mezzatesta, who held top jobs at the Kimbell Art Museum and the Duke University Museum of Art before becoming director of the Palm Beach Fair, says it’s only natural that dealers and collectors pay attention to museum exhibitions; the institutions spark a “rethinking of common assumptions” about the value of art artistically—and financially.   

The Art Institute of Chicago’s opening is more than a year away, but it’s already having an impact on prices—in the sense that the Art Institute is paying higher ones. Sculptor Charles Ray hit an auction record of $2.2 million in 2000; the Art Institute recently paid far more—Artnet.com estimates $5 million—for Ray’s colossal Hinoki, a 38-foot-long sculpture of a felled oak tree, meticulously carved to Ray’s specifications from hundreds of wooden blocks by a team of Japanese craftsmen.     

What does that mean for Ray’s market? Well, back in 2004, when news got out that MOMA had commissioned a Peter Doig painting for its reopening, the artist’s prices climbed to $650,000 at an auction shortly after the event. A year earlier, no work of his had sold for more than $100,000.