Never mind their quality, a new economic study concludes that R-rated movies are just bad business for Hollywood studios. In a study that questions the industry's basic business model, economics professor Arthur De Vany shows that the combination of a big budget, top stars and a R rating may be the worst investment a Hollywood studio can make.

• In fact, the study concludes that R-rated films are less than half as likely as PG releases to gross $25 million domestically.

• Furthermore, G, PG and PG-13 movies all generate better revenues and profits than R-rated films while keeping costs down.

• Yet, according to De Vany's study, more than half of the films released in the last decade were rated R, less than 3 percent were rated G and the remainder were split about evenly between PG and PG-13 movies.

De Vany undertook the study to test a theory advanced by film reviewer Michael Medved, who criticizes R-rated films not only because they have foul language, sexual content and graphic violence, but because Hollywood is losing money by making so many of them.

Using a complex economic model honed by earlier studies De Vany authored on more traditional industries, he concluded that R-rated movies are just a bad business decision.

"I think the studios are running around trying to apply formulas that are based on wrong kinds of statistical thinking to a business that's very different from that," De Vany said.

Source: Erik Nelson, "Film sex, violence not good business, study says," Drudge Report, July 12, 2000; Arthur De Vany (Private Enterprise Research Center; University of California) and W. David Walls (University of Hong Kong) "Does Hollywood Make Too Many R-rated Movies? Risk, Stochastic Dominance, and the Illusion of Expectation," Working Paper 12, 2000, Private Enterprise Research Center, Academic Building West, Room 3028, Texas A&M University, 4231 TAMU, College Station, Texas 77843, (979) 845-7722.