Regulation of Charlatans in High-Skill Professions

Jonathan B. Berk and Jules van Binsbergen

No 23696, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We model 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.

JEL-codes: D11 D18 G18 K2 K22 K23 L51 (search for similar items in EconPapers)
Date: 2017-08
New Economics Papers: this item is included in nep-law and nep-mic
Note: AP CF LE LS
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Citations: View citations in EconPapers (4)

Published as JONATHAN B. BERK & JULES H. VAN BINSBERGEN, 2022. "Regulation of Charlatans in High‐Skill Professions," The Journal of Finance, vol 77(2), pages 1219-1258.

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Working Paper: Regulation of Charlatans in High-Skill Professions (2017)
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