How block booking facilitated self-enforcing film contracts

This paper uses the block-booking film exhibition contracts that were the s ubject of Paramount to examine the role of contract terms in facilitating s elf-enforcing relationships. Because of the large uncertainty in film value at the time of contracting, it is difficult to fully specify optimal exhib itor performance (such as exhibition run length) ex ante. Instead, the effi cient contractual arrangement contractually overconstrains exhibitors and r elies on the superior reputational capital of distributors to flexibly adju st contract terms ex post. The analysis illustrates that, rather than think ing of contracts as either court enforced or self-enforced, transactors gen erally combine court-enforced and self-enforced sanctions by using contract terms to economize on their limited reputational capital. Block booking is explained within this framework by its effects on reducing the variance in the value of the film package and, therefore, the demands placed on the di stributors' reputational capital.