We describe a real-world profit sharing contract--the movie exhibition contract--and consider alternative explanations for its use. Two explanations based on difficulties with forecasting fit the facts better than asymmetric information models. The first emphasizes two-sided risk aversion; the second emphasizes measurement costs. Transaction costs and long-term relationships also affect contractual practices. We use an original data set of all exhibition contracts involving 13 theaters owned by a prominent St. Louis exhibitor over a two-year period to inform our theories and test hypotheses. The findings question traditional contract theory and may be relevant for other contracting environments.(JEL L14, L82, D45, D80) Copyright 2005, Oxford University Press.
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Article provided by Oxford University Press in its journal Economic Inquiry.
Volume (Year): 43 (2005) Issue (Month): 2 (April) Pages: 354-369 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
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