Voluntary Funding for Generic Advertising Using a Provision Point Mechanism: An Experimental Analysis of Option Assurance

The mandatory nature of generic advertising funding remains a contentious issue. Theoretically and in laboratory environments, a provision point mechanism with a money-back guarantee offers an attractive voluntary alternative to the standard voluntary contribution mechanisms, yet in practice, few examples of multiple-round provision point mechanisms exist. A practical concern with applying these mechanisms is that even a slight shortfall in contributions relative to the designated funding threshold in one period would engender an irreversible shutdown of administrative capacity with negative consequences for subsequent periods. This paper uses experimental economics to test new two-threshold provision point mechanisms in the context of check-off programs for funding commodity marketing programs that would separately fund the minimum administrative capacity and the more costly full marketing program. In these mechanisms, even if a funding shortfall occurs for the full marketing program, the low threshold can maintain the administrative capacity and retain the option for future funding of advertising. We demonstrate that providing such "“option assurance"” does not lead to a decrease in overall contributions and, in some settings, can increase producer surplus.