The Movies

This chapter is an overview of a new kind of economics of the movies; it also is my attempt to lay a new foundation of the economics of art and culture. The essence of cultural goods is that they are creative goods that have no natural limit on their consumption or dissemination; they are information goods. And they are wildly uncertain. I show how this vision may be implemented in a rigorous and insightful way in the study of the movies. A centerpiece of the analysis is the stable Paretian hypothesis and its usefulness as a model of motion picture revenues, costs, and returns. The industry's organization, contracts, pricing, and compensation deals are also seen as rational adaptations to the uncertainty captured by the stable Paretian probability model. The essence of the stable Paretian model is that the probabilities of motion picture outcomes are far from Normal. The tails of the stable Paretian distribution are "heavy" and large-scale events are far more probable in a Paretian than in a Gaussian world. The large events far out on the probability tails dominate sample statistics. The variance is infinite and, for some variables, even the mean does not exist. Movie box office revenues, therefore, have no natural size or scale and there is no typical or average movie; each is unique unto itself. Revenue and cost dynamics are complex and expectations of cost or revenue at level X are proportional to X.