Regulation of Charlatans in High-Skill Professions
66 Pages Posted: 4 Jun 2017 Last revised: 27 Aug 2019
Date Written: August 26, 2019
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
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