Regulation of Charlatans in High-Skill Professions

68 Pages Posted: 4 Jun 2017 Last revised: 6 Aug 2017

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)

Multiple version iconThere are 2 versions of this paper

Date Written: August 4, 2017

Abstract

We study 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.

Keywords: Charlatans, Regulation, Information Disclosure, Licensing

Suggested Citation

Berk, Jonathan B. and van Binsbergen, Jules H., Regulation of Charlatans in High-Skill Professions (August 4, 2017). 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

Stanford Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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

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