Working Paper: NBER ID: w20162
Authors: Joshua S. Gans
Abstract: There is a puzzle arising from empirical analyses of the impact of music piracy that this has caused declines in music revenue without a consequential decline, and perhaps even an increase, in the entry of artists and the supply of high quality music. There have been numerous explanations posited and this paper adds a novel one: that artists are time inconsistent and hence, tend to underweight fame over fortune when making future choices; i.e., the degree to which they will 'sell out.' Regardless of whether selling out is anticipated or not, the puzzle is resolved. When selling out is not anticipated, future expectations of piracy are not a concern as these impact on monetary awards that are not driving entry. When selling out is anticipated, piracy actually constrains the degree to which artists sell out, and assured of that, raises entry returns. Implications and the role of publisher contracts are also explored.
Keywords: music piracy; artist entry; behavioral economics; time inconsistency
JEL Codes: D03; K11; L82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Time-inconsistent artists (Z11) | Increased artist entry into the industry (L82) |
| Anticipated piracy does not deter entry (L17) | Increased artist entry into the industry (L82) |
| Underweighting of future revenues due to piracy (D45) | Increased artist entry into the industry (L82) |
| Publisher contracts (L14) | Increased artist entry into the industry (L82) |