Does Regulation Affect Economic Outcomes? The Case of Dentistry

Abstract

This study examines the role of variations in occupational licensing policies in improving the quality of services provided to consumers and the effect of restrictive regulations on the prices of certain services and on the earnings of practitioners. Theory suggests that more restrictive licensing may raise prices, but that it may also raise demand by reducing uncertainty about the quality of the services. This paper uses unique data on the dental health of incoming Air Force personnel to analyze empirically the effects of varying licensing stringency among the states. We find that tougher licensing does not improve outcomes, but it does raise prices and earnings of practitioners. Our results cast doubt on the principal public interest argument in favor of more stringent state licensing practices.

JEL Classification: J3, J4, K2, L5