IDEAS home Printed from https://ideas.repec.org/p/ags/cudarb/122094.html
   My bibliography  Save this paper

Status Quo Bias and Voluntary Contributions: Can Lab Experiments Parallel Real World Outcomes for Generic Advertising?

Author

Listed:
  • Messer, Kent D.
  • Kaiser, Harry M.
  • Schulze, William D.

Abstract

This paper exploits a unique opportunity to test parallelism between the field and laboratory for the Voluntary Contribution Mechanism (VCM). Most commodities in the United States have checkoff programs assessing producers for generic advertising and promotion, a public good for producers. Examples include: Got Milk? and the Incredible Edible Egg. Originally, participation in many of these programs used the VCM and the freeriding observed follows a similar pattern to that seen in the laboratory by experimental economists. For example, a substantial amount of historical information is available for the egg industry's generic advertising program. We simulate both the economic and psychological details of this industry in a parallelism experiment. The results over eleven rounds of the VCM conducted in the laboratory are strikingly similar to the real-world results for the American Egg Board's program from 1977 to 1988. We also replicate the positive vote in favor of a mandatory program to replace the VCM that occurred in 1988. All commodity checkoff programs today are mandatory. Yet the constitutionality of mandatory checkoff programs has recently been challenged on the grounds that mandatory programs violate individual producer's free speech rights under the First Amendment. In light of this legal uncertainty, this paper explores the feasibility of using a voluntary provision point mechanism (PPM) which closely follows the institutional design of the VCM and mandatory programs used by the egg industry. Our results suggest that although the PPM performs better than the VCM, both mechanisms in this institutional setting yield far higher levels of contributions than those obtained in prior research. Thus, the research next explores why the levels of giving observed for generic advertising are higher than traditionally observed in the lab. Our results suggest that the institutional design employed by the American Egg Board and others where assessments were collected first and then having producers request refunds afterwards, established a social norm, or reference point, which leads to higher levels of contributions through status quo bias. This bias appears to increase contributions in both the VCM and PPM. However, this effect decreases over rounds as contributions still appear to converge to the Nash equilibrium of zero contributions in the case of the VCM and to the particular Nash equilibrium of just covering costs of the provision point in the PPM.

Suggested Citation

  • Messer, Kent D. & Kaiser, Harry M. & Schulze, William D., 2004. "Status Quo Bias and Voluntary Contributions: Can Lab Experiments Parallel Real World Outcomes for Generic Advertising?," Research Bulletins 122094, Cornell University, Department of Applied Economics and Management.
  • Handle: RePEc:ags:cudarb:122094
    DOI: 10.22004/ag.econ.122094
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/122094/files/Cornell_Dyson_rb0403.pdf
    Download Restriction: no

    File URL: https://libkey.io/10.22004/ag.econ.122094?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Marks, Melanie B & Croson, Rachel T A, 1999. "The Effect of Incomplete Information in a Threshold Public Goods Experiment," Public Choice, Springer, vol. 99(1-2), pages 103-118, April.
    2. Rose, Steven K. & Clark, Jeremy & Poe, Gregory L. & Rondeau, Daniel & Schulze, William D., 2002. "The private provision of public goods: tests of a provision point mechanism for funding green power programs," Resource and Energy Economics, Elsevier, vol. 24(1-2), pages 131-155, February.
    3. Samuelson, William & Zeckhauser, Richard, 1988. "Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
    4. Reberte, J. Carlos & Schmit, Todd M. & Kaiser, Harry M., 1996. "An Ex Post Evaluation of Generic Egg Advertising in the U.S," Research Bulletins 122835, Cornell University, Department of Applied Economics and Management.
    5. Marks, Melanie & Croson, Rachel, 1998. "Alternative rebate rules in the provision of a threshold public good: An experimental investigation," Journal of Public Economics, Elsevier, vol. 67(2), pages 195-220, February.
    6. Johnson, Eric J & Hershey, John & Meszaros, Jacqueline & Kunreuther, Howard, 1993. "Framing, Probability Distortions, and Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 35-51, August.
    7. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    8. Bagnoli, Mark & McKee, Michael, 1991. "Voluntary Contribution Games: Efficient Private Provision of Public Goods," Economic Inquiry, Western Economic Association International, vol. 29(2), pages 351-366, April.
    9. Gregory Poe & Jeremy Clark & Daniel Rondeau & William Schulze, 2002. "Provision Point Mechanisms and Field Validity Tests of Contingent Valuation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 23(1), pages 105-131, September.
    10. Mark Isaac, R. & McCue, Kenneth F. & Plott, Charles R., 1985. "Public goods provision in an experimental environment," Journal of Public Economics, Elsevier, vol. 26(1), pages 51-74, February.
    11. R. Isaac & David Schmidtz & James Walker, 1989. "The assurance problem in a laboratory market," Public Choice, Springer, vol. 62(3), pages 217-236, September.
    12. Dawes, Robyn M. & Orbell, John M. & Simmons, Randy T. & Van De Kragt, Alphons J. C., 1986. "Organizing Groups for Collective Action," American Political Science Review, Cambridge University Press, vol. 80(4), pages 1171-1185, December.
    13. Deborah J. Brown & Lee F. Schrader, 1990. "Cholesterol Information and Shell Egg Consumption," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(3), pages 548-555.
    14. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1149-1187.
    15. John M. Crespi, 2003. "The Generic Advertising Controversy: How Did We Get Here and Where Are We Going?," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 25(2), pages 294-315.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kent D. Messer & Harry M. Kaiser & Gregory L. Poe, 2007. "Voluntary Funding for Generic Advertising Using a Provision Point Mechanism: An Experimental Analysis of Option Assurance," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 29(3), pages 612-631.
    2. Kent D. Messer & Todd M. Schmit & Harry M. Kaiser, 2005. "Optimal Institutional Mechanisms for Funding Generic Advertising: An Experimental Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 1046-1060.
    3. Norwood, F. Bailey, 2005. "Can Calibration Reconcile Stated and Observed Preferences?," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 37(1), pages 1-10, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rose, Steven K. & Clark, Jeremy & Poe, Gregory L. & Rondeau, Daniel & Schulze, William D., 2002. "The private provision of public goods: tests of a provision point mechanism for funding green power programs," Resource and Energy Economics, Elsevier, vol. 24(1-2), pages 131-155, February.
    2. Bose, Bijetri & Rabotyagov, Sergey, 2018. "Provision of public goods using a combination of lottery and a provision point," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 73(C), pages 99-115.
    3. Rachel Croson & Melanie Marks, 2000. "Step Returns in Threshold Public Goods: A Meta- and Experimental Analysis," Experimental Economics, Springer;Economic Science Association, vol. 2(3), pages 239-259, March.
    4. Messer, Kent D. & Zarghamee, Homa & Kaiser, Harry M. & Schulze, William D., 2007. "New hope for the voluntary contributions mechanism: The effects of context," Journal of Public Economics, Elsevier, vol. 91(9), pages 1783-1799, September.
    5. David M. McEvoy & James J. Murphy & John M. Spraggon & John K. Stranlund, 2011. "The problem of maintaining compliance within stable coalitions: experimental evidence," Oxford Economic Papers, Oxford University Press, vol. 63(3), pages 475-498, July.
    6. Kent D. Messer & Todd M. Schmit & Harry M. Kaiser, 2005. "Optimal Institutional Mechanisms for Funding Generic Advertising: An Experimental Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 1046-1060.
    7. Urs Fischbacher & Werner Güth & M. Vittoria Levati, 2011. "Crossing the Point of No Return: A Public Goods Experiment," Jena Economics Research Papers 2011-059, Friedrich-Schiller-University Jena.
    8. Bougherara, Douadia & Denant-Boemont, Laurent & Masclet, David, 2011. "Cooperation and framing effects in provision point mechanisms: Experimental evidence," Ecological Economics, Elsevier, vol. 70(6), pages 1200-1210, April.
    9. Glenn Bush & Nick Hanley & Mirko Moro & Daniel Rondeau, 2013. "Measuring the Local Costs of Conservation: A Provision Point Mechanism for Eliciting Willingness to Accept Compensation," Land Economics, University of Wisconsin Press, vol. 89(3), pages 490-513.
    10. Swallow, Stephen K., 2013. "Demand-side Value for Ecosystem Services and Implications for Innovative Markets: Experimental Perspectives on the Possibility of Private Markets for Public Goods," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 42(1), pages 1-24, April.
    11. Rondeau, Daniel & D. Schulze, William & Poe, Gregory L., 1999. "Voluntary revelation of the demand for public goods using a provision point mechanism," Journal of Public Economics, Elsevier, vol. 72(3), pages 455-470, June.
    12. Maoliang Ye & Jie Zheng & Plamen Nikolov & Sam Asher, 2020. "One Step at a Time: Does Gradualism Build Coordination?," Management Science, INFORMS, vol. 66(1), pages 113-129, January.
    13. Swallow, Stephen K. & Anderson, Christopher M. & Uchida, Emi, 2018. "The Bobolink Project: Selling Public Goods From Ecosystem Services Using Provision Point Mechanisms," Ecological Economics, Elsevier, vol. 143(C), pages 236-252.
    14. Kent D. Messer & Harry M. Kaiser & Gregory L. Poe, 2007. "Voluntary Funding for Generic Advertising Using a Provision Point Mechanism: An Experimental Analysis of Option Assurance," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 29(3), pages 612-631.
    15. Johnston, Marie, 2014. "Contingent Valuation: A Comparison of Referendum and Voluntary Contribution Mechanisms," 2014 Conference (58th), February 4-7, 2014, Port Macquarie, Australia 165843, Australian Agricultural and Resource Economics Society.
    16. Todd Cherry & David McEvoy, 2013. "Enforcing Compliance with Environmental Agreements in the Absence of Strong Institutions: An Experimental Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(1), pages 63-77, January.
    17. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    18. Grigoriadis, Theocharis, 2017. "Religion, administration & public goods: Experimental evidence from Russia," Economic Modelling, Elsevier, vol. 66(C), pages 42-60.
    19. Indranil Goswami & Oleg Urminsky, 2016. "When should the ask be a nudge? The Effect of Default Amounts on Charitable Donations," Natural Field Experiments 00659, The Field Experiments Website.
    20. James Andreoni & Laura Gee, 2015. "Gunning for efficiency with third party enforcement in threshold public goods," Experimental Economics, Springer;Economic Science Association, vol. 18(1), pages 154-171, March.

    More about this item

    Keywords

    Marketing;

    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:cudarb:122094. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/dacorus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.