At the movies: The economics of exhibition contracts

We describe a real-world profit sharing contract-the movie exhibition contract - and consider alternative explanations for its use. Two explanations based oil 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 all 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.