Consumer Protection in an Online World: An Analysis of Occupational Licensing

72 Pages Posted: 13 Jan 2020 Last revised: 9 Sep 2022

See all articles by Chiara Farronato

Chiara Farronato

Harvard University; National Bureau of Economic Research (NBER)

Andrey Fradkin

Boston University

Bradley Larsen

Stanford University - Department of Economics; National Bureau of Economic Research (NBER); eBay Research Labs

Erik Brynjolfsson

National Bureau of Economic Research (NBER); Stanford

Date Written: January 2020

Abstract

We study the effects of occupational licensing on consumer choices and market outcomes in a large online platform for residential home services. We exploit exogenous variation in the time at which licenses are displayed on the platform to identify the causal effects of licensing information on consumer choices. We find that the platform-verified licensing status of a professional is unimportant for consumer decisions relative to review ratings and prices. We confirm this result in an independent consumer survey. We also use variation in regulation stringency across states and occupations to measure the effects of licensing on aggregate market outcomes on the platform. Our results show that more stringent licensing regulations are associated with less competition and higher prices but not with any improvement in customer satisfaction as measured by review ratings or the propensity to use the platform again.

Suggested Citation

Farronato, Chiara and Fradkin, Andrey and Larsen, Bradley and Brynjolfsson, Erik, Consumer Protection in an Online World: An Analysis of Occupational Licensing (January 2020). NBER Working Paper No. w26601, Available at SSRN: https://ssrn.com/abstract=3518239

Chiara Farronato (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
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Andrey Fradkin

Boston University ( email )

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Bradley Larsen

Stanford University - Department of Economics ( email )

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Stanford, CA 94305-6072
United States

HOME PAGE: http://www.stanford.edu/~bjlarsen/research.html

National Bureau of Economic Research (NBER) ( email )

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eBay Research Labs ( email )

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San Jose, CA
United States

Erik Brynjolfsson

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stanford ( email )

366 Galvez St
Stanford, CA 94305
United States

HOME PAGE: http://brynjolfsson.com

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