IDEAS home Printed from https://ideas.repec.org/a/aea/aejapp/v16y2024i3p549-79.html
   My bibliography  Save this article

Consumer Protection in an Online World: An Analysis of Occupational Licensing

Author

Listed:
  • Chiara Farronato
  • Andrey Fradkin
  • Bradley J. Larsen
  • Erik Brynjolfsson

Abstract

We study the demand and supply implications of occupational licensing using transaction-level data from a large online platform for home improvement services. We find that demand is more responsive to a professional's reviews than to the professional's platform-verified licensing status. We show some evidence that consumers view licenses and reviews as substitutes. We confirm the generality of our findings off the platform in an independent consumer survey. Combining state-level licensing regulation data with platform microdata, we find that more stringent requirements are associated with less competition, higher prices, and no increase in demand or consumer satisfaction.

Suggested Citation

  • Chiara Farronato & Andrey Fradkin & Bradley J. Larsen & Erik Brynjolfsson, 2024. "Consumer Protection in an Online World: An Analysis of Occupational Licensing," American Economic Journal: Applied Economics, American Economic Association, vol. 16(3), pages 549-579, July.
    • Handle: RePEc:aea:aejapp:v:16:y:2024:i:3:p:549-79
    DOI: 10.1257/app.20210716
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/app.20210716
    Download Restriction: no
    File URL: https://doi.org/10.3886/E192072V2
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/app.20210716.appx
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/app.20210716.ds
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://libkey.io/10.1257/app.20210716?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. Judith A. Chevalier & Fiona M. Scott Morton, 2008. "State Casket Sales Restrictions: A Pointless Undertaking?," Journal of Law and Economics, University of Chicago Press, vol. 51(1), pages 1-23, February.
    2. Morris M. Kleiner & Alan B. Krueger, 2010. "The Prevalence and Effects of Occupational Licensing," British Journal of Industrial Relations, London School of Economics, vol. 48(4), pages 676-687, December.
    3. Timmons, Edward Joseph, 2017. "The effects of expanded nurse practitioner and physician assistant scope of practice on the cost of Medicaid patient care," Health Policy, Elsevier, vol. 121(2), pages 189-196.
    4. Brigham Frandsen & Lars Lefgren & Emily Leslie, 2023. "Judging Judge Fixed Effects," American Economic Review, American Economic Association, vol. 113(1), pages 253-277, January.
    5. Peter Blair & Bobby Chung, 2017. "Job Market Signaling through Occupational Licensing," Working Papers 2017-50, Human Capital and Economic Opportunity Working Group.
    6. Mario Pagliero, 2010. "Licensing Exam Difficulty and Entry Salaries in the US Market for Lawyers," British Journal of Industrial Relations, London School of Economics, vol. 48(4), pages 726-739, December.
    7. Janna E. Johnson & Morris M. Kleiner, 2017. "Is Occupational Licensing a Barrier to Interstate Migration?," NBER Working Papers 24107, National Bureau of Economic Research, Inc.
    8. Morris M. Kleiner, 2006. "Licensing Occupations: Ensuring Quality or Restricting Competition?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number lo.
    9. Marc T. Law & Mindy S. Marks, 2009. "Effects of Occupational Licensing Laws on Minorities: Evidence from the Progressive Era," Journal of Law and Economics, University of Chicago Press, vol. 52(2), pages 351-366, May.
    10. Kleiner, Morris M & Kudrle, Robert T, 2000. "Does Regulation Affect Economic Outcomes? The Case of Dentistry," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 547-582, October.
    11. Edward J. Timmons & Robert J. Thornton, 2010. "The Licensing of Barbers in the USA," British Journal of Industrial Relations, London School of Economics, vol. 48(4), pages 740-757, December.
    12. Chen, Daniel L. & Horton, John J., 2016. "Are Online Labor Markets Spot Markets for Tasks?: A Field Experiment on the Behavioral Response to Wage Cuts," TSE Working Papers 16-675, Toulouse School of Economics (TSE).
    13. Adriana D. Kugler & Robert M. Sauer, 2005. "Doctors without Borders? Relicensing Requirements and Negative Selection in the Market for Physicians," Journal of Labor Economics, University of Chicago Press, vol. 23(3), pages 437-466, July.
    14. Harrington, David E & Krynski, Kathy J, 2002. "The Effect of State Funeral Regulations on Cremations Rates: Testing for Demand Inducement in Funeral Markets," Journal of Law and Economics, University of Chicago Press, vol. 45(1), pages 199-225, April.
    15. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    16. Carl Shapiro, 1986. "Investment, Moral Hazard, and Occupational Licensing," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 53(5), pages 843-862.
    17. Maya N. Federman & David E. Harrington & Kathy J. Krynski, 2006. "The Impact of State Licensing Regulations on Low-Skilled Immigrants: The Case of Vietnamese Manicurists," American Economic Review, American Economic Association, vol. 96(2), pages 237-241, May.
    18. Christina DePasquale & Kevin Stange, 2016. "Labor Supply Effects of Occupational Regulation: Evidence from the Nurse Licensure Compact," NBER Working Papers 22344, National Bureau of Economic Research, Inc.
    19. Chris Nosko & Steven Tadelis, 2015. "The Limits of Reputation in Platform Markets: An Empirical Analysis and Field Experiment," NBER Working Papers 20830, National Bureau of Economic Research, Inc.
    20. Amanda Pallais, 2014. "Inefficient Hiring in Entry-Level Labor Markets," American Economic Review, American Economic Association, vol. 104(11), pages 3565-3599, November.
    21. Traczynski, Jeffrey & Udalova, Victoria, 2018. "Nurse practitioner independence, health care utilization, and health outcomes," Journal of Health Economics, Elsevier, vol. 58(C), pages 90-109.
    22. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-1346, December.
    23. Simon Rottenberg, 1980. "Occupational Licensure and Regulation," Books, American Enterprise Institute, number 968900, September.
    24. Daniel L. Chen & John J. Horton, 2016. "Research Note—Are Online Labor Markets Spot Markets for Tasks? A Field Experiment on the Behavioral Response to Wage Cuts," Information Systems Research, INFORMS, vol. 27(2), pages 403-423, June.
    Full references (including those not matched with items on IDEAS)

    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. Pagliero, Mario, 2013. "The impact of potential labor supply on licensing exam difficulty," Labour Economics, Elsevier, vol. 25(C), pages 141-152.
    2. Marc T. Law & Mindy S. Marks, 2017. "The Labor-Market Effects of Occupational Licensing Laws in Nursing," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 56(4), pages 640-661, October.
    3. Mario Pagliero & Edward Timmons, 2013. "Occupational Regulation in the European Legal Market," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 10(2), pages 243-265, August.
    4. Mario Pagliero, 2019. "Occupational Licensing in the EU: Protecting Consumers or Limiting Competition?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(1), pages 137-153, August.
    5. Marek Zapletal, 2017. "The Effects of Occupational Licensing Evidence from Detailed Business-Level Data," Working Papers 17-20, Center for Economic Studies, U.S. Census Bureau.
    6. Koumenta, Maria & Pagliero, Mario & Rostam-Afschar, Davud, 2022. "Occupational Regulation, Institutions, and Migrants’ Labor Market Outcomes," Labour Economics, Elsevier, vol. 79(C).
    7. Marek Zapletal, 2019. "The Effects of Occupational Licensing: Evidence from Business‐Level Data," British Journal of Industrial Relations, London School of Economics, vol. 57(4), pages 894-918, December.
    8. Morikawa, Masayuki, 2018. "Occupational licenses and labor market outcomes in Japan," Japan and the World Economy, Elsevier, vol. 48(C), pages 45-56.
    9. J. Mark Ramseyer & Eric Rasmusen, 2013. "Lowering the Bar to Raise the Bar: Licensing Difficulty and Attorney Quality in Japan," Working Papers 2013-12, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    10. Bruno Deffains & Dominique Demougin, 2023. "Capitation taxes and the regulation of professional services," European Journal of Law and Economics, Springer, vol. 55(2), pages 167-193, April.
    11. Dustin Chambers & Colin O’Reilly, 2022. "The economic theory of regulation and inequality," Public Choice, Springer, vol. 193(1), pages 63-78, October.
    12. Xia, Xing, 2021. "Barrier to Entry or Signal of Quality? The Effects of Occupational Licensing on Minority Dental Assistants," Labour Economics, Elsevier, vol. 71(C).
    13. Wei Chi & Morris M. Kleiner & Xiaoye Qian, 2017. "Do Occupational Regulations Increase Earnings? Evidence from China," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 56(2), pages 351-381, April.
    14. Masayuki MORIKAWA, 2017. "Occupational Licenses and Labor Market Outcomes," Discussion papers 17078, Research Institute of Economy, Trade and Industry (RIETI).
    15. Pagliero, Mario, 2011. "What is the objective of professional licensing? Evidence from the US market for lawyers," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 473-483, July.
    16. Kihwan Bae & Edward Timmons, 2023. "Now You Can Take It with You: Effects of Occupational Credential Recognition on Labor Market Outcomes," Working Papers 23-03, Department of Economics, West Virginia University.
    17. Morris M. Kleiner & Evan J. Soltas, 2019. "A Welfare Analysis of Occupational Licensing in U.S. States," NBER Working Papers 26383, National Bureau of Economic Research, Inc.
    18. Morris M. Kleiner & Evan J. Soltas, 2019. "A Welfare Analysis of Occupational Licensing in U.S. States," Staff Report 590, Federal Reserve Bank of Minneapolis.
    19. Alicia Plemmons, 2022. "Occupational licensing's effects on firm location and employment in the United States," British Journal of Industrial Relations, London School of Economics, vol. 60(4), pages 735-760, December.
    20. Dick M. Carpenter II & Lisa Knepper & Angela C. Erickson & John K. Ross, 2015. "Regulating Work: Measuring the Scope and Burden of Occupational Licensure Among Low- and Moderate-Income Occupations in the United States," Economic Affairs, Wiley Blackwell, vol. 35(1), pages 3-20, February.

    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

    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:aea:aejapp:v:16:y:2024:i:3:p:549-79. 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: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.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.