Two-Part Share Contracts, Risk, and the Life Cycle of Stars: Some Empirical Results from Motion Picture Contracts
What determines the market value of a star? This paper examines the size of fixed payments to leading actors in the U.S. motion picture industry from a sample of contracts between 1959 and 1989. Competing explanations for the size of compensation, including rent capture, risk sharing, signalling, and portfolio optimization by studio executives are explored. The size of fixed payment across all contract types moves with an actor's history of participating in top-20 grossing films over the past five, ten, fifteen, and twenty films. Further, the impact of past top-20 successes is enhanced by the length of the actor's career. When contracts are divided into those with both fixed payments and share payments and those with only fixed payments, the fixed payment in two-part share contracts is influenced to some extent by risk concerns, in addition to the actor's star power. Fixed-payment-only contracts are most strongly influenced by measures of signalling and star power. Data on both types of contract provide strong support for the rent-capture theory: actors are paid rents upfront for the star value they add to the production. Copyright Kluwer Academic Publishers 2004
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Murphy, K.J. & Gibbons, R., 1990.
"Optimal Incentive Contracts in the Presence of Career Concerns : Theory and Evidence,"
90-09, Rochester, Business - Managerial Economics Research Center.
- Gibbons, Robert & Murphy, Kevin J, 1992. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 468-505, June.
- Robert Gibbons & Kevin J. Murphy, 1991. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," NBER Working Papers 3792, National Bureau of Economic Research, Inc.
- Gibbons, R. & Murphy, K.J., 1990. "Optimal Incentive Contracts In The Presence Of Career Concerns: Theory And Evidence," Working papers 563, Massachusetts Institute of Technology (MIT), Department of Economics.
- Darlene C. Chisholm, 1993. "Asset Specificity and Long-Term Contracts: The Case of the Motion-Pictures Industry," Eastern Economic Journal, Eastern Economic Association, vol. 19(2), pages 143-155, Spring.
- Steven Albert, 1998. "Movie Stars and the Distribution of Financially Successful Films in the Motion Picture Industry," Journal of Cultural Economics, Springer, vol. 22(4), pages 249-270, December.
- Judith Chevalier & Glenn Ellison, 1998.
"Career Concerns of Mutual Fund Managers,"
NBER Working Papers
6394, National Bureau of Economic Research, Inc.
- Chisholm, Darlene C, 1997. "Profit-Sharing versus Fixed-Payment Contracts: Evidence from the Motion Pictures Industry," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(1), pages 169-201, April.
- Alan Paul & Archie Kleingartner, 1994. "Flexible production and the transformation of industrial relations in the motion picture and television industry," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 47(4), pages 663-678, July.
- Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
- De Vany, Arthur & Walls, W David, 1996. "Bose-Einstein Dynamics and Adaptive Contracting in the Motion Picture Industry," Economic Journal, Royal Economic Society, vol. 106(439), pages 1493-1514, November.
- Arthur De Vany & W. Walls, 1999. "Uncertainty in the Movie Industry: Does Star Power Reduce the Terror of the Box Office?," Journal of Cultural Economics, Springer, vol. 23(4), pages 285-318, November.
- Weinstein, Mark, 1998. "Profit-Sharing Contracts in Hollywood: Evolution and Analysis," The Journal of Legal Studies, University of Chicago Press, vol. 27(1), pages 67-112, January.
- Nancy L. Rose & Andrea Shepard, 1997.
"Firm Diversification and CEO Compensation: Managerial Ability or Executive Entrenchment?,"
RAND Journal of Economics,
The RAND Corporation, vol. 28(3), pages 489-514, Autumn.
- Nancy L. Rose & Andrea Shepard, 1994. "Firm Diversification and CEO Compensation: Managerial Ability or Executive Entrenchment?," NBER Working Papers 4723, National Bureau of Economic Research, Inc.
- Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, June.
- Allen, Douglas W & Lueck, Dean, 1995. "Risk Preferences and the Economics of Contracts," American Economic Review, American Economic Association, vol. 85(2), pages 447-51, May.
When requesting a correction, please mention this item's handle: RePEc:kap:jculte:v:28:y:2004:i:1:p:37-56. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.