Regulation of Charlatans in High-Skill Professions

66 Pages Posted: 4 Jun 2017 Last revised: 27 Aug 2019

See all articles by Jonathan Berk

Jonathan Berk

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

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Date Written: August 26, 2019

Abstract

We model a market for a skill in short supply and high demand, where the presence of charlatans (professionals who sell a service they do not deliver on) is an equilibrium outcome. Under a set of plausible assumptions, reducing the number of charlatans through regulation lowers consumer surplus because of the resulting reduction in competition amongst producers. Decreasing the number of charlatans turns a lower quality buyer’s market into a higher quality seller’s market. Producers strictly benefit from this reduction, likely explaining the regulation we observe. We derive the factors that drive the cross-sectional variation in charlatans (regulation) across professions.

Keywords: Charlatans, Regulation, Information Disclosure, Licensing, Competition

Suggested Citation

Berk, Jonathan B. and van Binsbergen, Jules H., Regulation of Charlatans in High-Skill Professions (August 26, 2019). Stanford University Graduate School of Business Research Paper No. 17-43. Available at SSRN: https://ssrn.com/abstract=2979134 or http://dx.doi.org/10.2139/ssrn.2979134

Jonathan B. Berk

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Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

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