Jonathan Chait has been having a back and forth with Will Wilkinson over the extent and insurmountability of regulatory capture. In his last reply, Chait summed up his position like this:
If [Will] has access to some study showing that regulation usually, as a rule rather than the exception, become s a weapon of the powers it was intended to regulate and winds up serving the opposite of its intended purpose, then I’m willing to listen. But if his only argument is “look at all of Tim Carney’s articles,” then no, I’m not persuaded, and and not many people outside the economic libertarian world are going to be, either.
Given the varieties and scope of regulation this would be a difficult question to answer with a particular study, or even with a handful of studies. Another problem is defining the challenge as showing that regulations end up “serving the opposite of its intended purpose”. Shouldn’t it be enough to show that regulations don’t serve their intended purpose at all but instead simply raise prices?
To focus on one class of regulations in particular, consider occupational licensing. In his book“Licensing Occupations: Ensuring Quality or Restricting Competition?”, Morris Kleiner surveys the literature on occupational licensing and finds a lot of evidence that it does nothing to improve quality. From teachers to interior designers to medical professionals. Now here, at the mention of medical professionals, is where alarm bells start going off in everybody’s heads except libertarians. I’m not arguing that any regulation of medical professionals represents inefficient capture in-and-of-itself, but that on the margin the restrictions put into place on medical professionals represent attempts to control competition rather than quality.
For instance, there are studies showing that the wide state-by-state variations in these regulations do not affect outcomes. In medicine there are studies showing that malpractice insurance premiums aren’t lower in states with occupational licensing, which you would expect if licensing was increasing service quality. There is evidence that nurses provide providing primary care services as effectively as doctors. There are the studies showing that licensing and certification for teachers do not improve outcomes. This is unsurprising given that in most cases how one qualifies for a license is strongly influenced by or even directly set by some group representing the interests of the industry.
In some cases it can even worsen outcomes by driving people priced out of the market into the black market, where quality is very low due to informational problems caused by regulation pushing these markets into the shadows. It’s difficult to develop a good or bad reputation when having any reputation whatsoever risks attracting law enforcement.
So I don’t know if this quite represents an answer to Chait’s challenge. But the balance of the evidence shows that on the margin occupational licensing does not improve quality. How important is that margin? Well there is a huge variety in the level of occupational licensing in states. Indiana has around 11% of it’s workforce licensed, while California has 30%. If all states moved towards regulatings more like Indiana, based on the evidence it seems unlikely that quality would be impacted despite cutting the number of licensed occupations down to nearly a third of the current level for some states.
There’s obviously a lot of regulation other than occupational licensing, so this doesn’t rebut Chait’s wider point. But it is a very important and widespread class of regulation. At the very least I would hope Chait would agree that regulatory capture is decidedly more than an exception to the rule when it comes to occupational licensing.
Finally, I’d also like to answer the challenge that libertarians aren’t interested in making these laws work better, and are only in abolishing them. Yes, because regulatory capture here has proven fairly intractiable, so just getting rid of many occupational licenses will be a huge improvement. But I am also interested in improving occupational regulations.
One thing that states can do is write these laws with sunset provisions that force legislators to reexamine them at some point. This was a suggestion by the Cato Institute in a paper I can’t find. Another thing that states can do is have mandatory registration for certain occupations, which is what Pennsylvania does for contractors. This help solves informational problems by ensuring that contractors can’t lie about who they are and then rip you off, and allows sites like Angie’s List to work better by ensuring that someone can’t dodge bad reviews by using fake names. States should also look at other states and see what works for them, given the wide variety of licensing there is a lot of improvement states can make by following their neighbors. The last suggestion is to give Matt Yglesias millions of dollars to start a think tank dedicated to identifying and calling attention to bad occupational licenses, and identifying good examples of occupational regulation.
1 comment
Comments feed for this article
Tuesday ~ February 8th, 2011 at 12:20 am
govt_mule
Don’t think you’re not making very persuasive arguments for reducing licensure.
“In medicine there are studies showing that malpractice insurance premiums aren’t lower in states with occupational licensing”
What state doesn’t require licensing of physicians? How could you generate any data to support this?
“This help solves informational problems by ensuring that contractors can’t lie about who they are and then rip you off”
Registration doesn’t slow them down much. They just go out of business and reincorporate under a new name every year or two. Now if individual contractors had to be licensed, and could have their license revoked, we would see improvement.
From earlier posts:
“College professors, for instance, generally do not face licensing requirements, and yet we don’t suffer from a scourge of colleges hiring high school dropouts to teach physics”
We certainly face a scourge of people who may as well be high school dropouts given their ability and/or desire to teach. And college faculty are vetted by committees spending many months and dozens of man-hours to screen candidates. Nobody running a barber shop has time to do that, nor time to stand over an employee and watch him work, nor can they risk their livelihood on a bad employee. It’s in the employer’s and the customer’s interest to hire someone credentialed by an independent body with the power to exclude incompetent people from the trade.
“Word of mouth doesn’t even work as well when a service is illegal”.
Isn’t word of mouth the ONLY way people get referred to the illegal dentist?
I don’t put a lot of stock in Kleiner’s ideas. I haven’t read his book, but the papers I’ve looked at aren’t very impressive. It is hard to separate the effect of licensure from other attributes when virtually everyone doing the job (physicians, for example) is licensed. But that doesn’t excuse addressing the problem with poor tools and fixed hypotheses.