Regulation of Charlatans in High-Skill Professions
47 Pages Posted: 4 Jun 2017 Last revised: 30 Dec 2020
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. In the model, reducing the number of charlatans through regulation lowers consumer surplus because of the resulting reduction in competition amongst producers. Producers can benefit from this reduction, potentially explaining the regulation we observe. The effect on total surplus depends on the type of regulation. 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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