Motion picture production incentives and filming location decisions: a discrete choice approach

Abstract

We use a discrete choice model to study the impact of tax incentives on firm location choices in situations involving heterogeneous geographic characteristics, heterogeneous firm preferences and large choice sets. We apply our model to investigate the impact of movie production incentives on filming location choices for movies produced from 1999 to 2013. We gather the characteristics of filming locations and use a machine-learning technique to define choice sets. We find production incentives can attract movies to a state, but the impact depends on the type of incentive offered, studio characteristics and inherent location geographic characteristics. Mid-sized studios respond to all forms of incentives, major studios respond only to refundable and transferable tax credits, and independent studios are not sensitive to any incentives. We fail to find strong evidence that incentives create a more permanent movie industry in a state. A counterfactual identifies the states most impacted by these policies. We supplement our discrete choice model with a simple cost-benefit analysis, which indicates that movie incentive programs are revenue-negative for states.

Do Movie Production Incentives Generate Economic Development?

“…This analysis finds no link between incentives that promote in‐state filming and states' economic growth or level. The findings are not surprising given previous estimates of small and nonrobust effects of MPIs on the film industry (Button ; Owens and Rennhoff Forthcoming; Swenson ; Thom ). The empirical findings are also consistent with reports by state economic development agencies that have estimated weak financial returns to their film incentive programs (Christopherson and Rightor ).…”

“…The author also finds nonrobust evidence of small employment effects, and that MPIs do not have a strong ability to develop a significant film industry. Owens and Rennhoff (Forthcoming) uses a discrete choice model to examine film location decisions and finds that film incentives can attract movies to states; however, the impact depends on the type of incentive, studio characteristics, and geography. Similar to Button (), MPIs are not associated with creating a more permanent film industry.…”

Ready for a Close-Up: The Effect of Tax Incentives on Film Production in California

“…In addition to the multitude of state cost-benefit evaluations, a few independent academic studies have sought to quantify the effects of MPI programs by looking across, rather than within, adopting states. Like their cost-benefit counterparts, different conclusions were reached within this regression analysis group, with some having found negative impacts (Lester, 2013; Owens & Rennhoff, 2018), while others noted mixed or small positive effects (Adkisson, 2013; Button, 2018, 2019; Swenson, 2017; Thom, 2018a, 2019). Lester (2013) used a benefit-cost analysis of Canada’s MPI program and focused on real income per capita.…”

“…He found that real incomes in Canada decreased by the equivalent of 96% of the tax revenue forgone by offering credits. Owens and Rennhoff (2018) used a discrete choice model to understand a production’s filming location decision. This approach essentially used propensity score matching on film locations to create comparison groups that were similar to each other on modeled characteristics, except for MPI status.…”

“…The majority of state-conducted cost-benefit studies (Christopherson & Rightor, 2010; McDonald, 2011; Tannenwald, 2010; Thom, 2018b) found negative returns on investment (ROI), though two studies, both funded in part by the Motion Picture Association of America (MPAA), found positive ROIs (Ernst & Young, 2009a, 2009b). Similarly, academic researchers using regression analysis also reached different conclusions, with some having found negative impacts (Lester, 2013; Owens & Rennhoff, 2018), while others noted mixed or small positive effects (Adkisson, 2013; Button, 2018, 2019; Swenson, 2017; Thom, 2018a, 2019).…”