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Regulation of Charlatans in High-Skill Professions

Author

Listed:
  • Jonathan B. Berk
  • Jules H. van Binsbergen

Abstract

We model a market for a skill that is in short supply and high demand, where the presence of charlatans (professionals who sell a service that they do not deliver on) is an equilibrium outcome. We use this model to evaluate the standards and disclosure requirements that exist in these markets. We show that reducing the number of charlatans through regulation decreases consumer surplus. Although both standards and disclosure drive charlatans out of the market, consumers are worse off because of the resulting reduction in competition amongst producers. Producers, on the other hand, strictly benefit from the regulation, implying that the regulation we observe in these markets likely derives from producer interests. Using these insights, we study the factors that drive the cross-sectional variation in charlatans across professions. Professions with weak trade groups, skills in larger supply, shorter training periods and less informative signals regarding the professional's skill, are more likely to feature charlatans.

Suggested Citation

  • Jonathan B. Berk & Jules H. van Binsbergen, 2017. "Regulation of Charlatans in High-Skill Professions," NBER Working Papers 23696, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23696
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    Cited by:

    1. Donato Masciandaro, 2018. "Central Bank Digital Cash and Cryptocurrencies: Insights from a New Baumol–Friedman Demand for Money," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(4), pages 540-550, December.
    2. Coen, Patrick, 2021. "Information Loss over the Business Cycle," TSE Working Papers 21-1220, Toulouse School of Economics (TSE).

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • K2 - Law and Economics - - Regulation and Business Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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