The Role of Soft and Hard Information in the Pricing of Assets and Contract Design - Evidence from Screenplay Sales

There is a growing literature on the differential impact of soft vs. hard information on organizational structure and behavior. Most empirical papers on soft information study the financial intermediation industry. This is one of the few papers that measure the impact of soft information in a different industry, namely, on sales of spec (unsolicited) screenplays. In our empirical analysis, we find that hard information (measurable experience) variables as well as soft information proxies, such as descriptive complexity, are priced. Screenplays with high soft information content are priced lower than harder information-type scripts. This is especially true for less experienced writers. We also find that large studios shun soft information, as predicted by most theories. This paper is also one of the few studies that analyze empirical contract design. We show that soft information and screenwriter reputation will affect the type of contracts offered, suggesting that contingent contracts may work when uncertainty and asymmetric information interact. We also find that large firms tend to offer more contingent contracts and pay a premium for hard information, similar to the findings in the banking literature. In the last part of the paper we follow some of the screenplays to production, and find that buyers seem to be able to forecast the success of a script, paying more for screenplays resulting in more successful films. In other words, harder information screenplays sell for more and result in more successful movies.