Coordination Contracts as Value Chain Creation Mechanism: The Case of Movie Industry

Abstract

Moviemaking process is complicated and includes many participants. In most emerging economies it is regularly financially supported by state agencies and doesn't bring sufficient return on investments, while in countries where this market is developed, the agreements among main participants are in a form of participation contracts, meaning that everybody's income is dependent on the final revenues, generated by the movie. However, existing contracts allows different parties to behave opportunistically. This paper answers the question on how to incentivize the participants to act fairly and consequently to minimize the losses of the weakest players of the chain. The main idea is that opportunistic behavior can be eliminated with the introduction of coordination contracts.