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

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  • Chiara Farronato
  • Andrey Fradkin
  • Bradley J. Larsen
  • Erik Brynjolfsson

Abstract

We study the demand and supply implications of occupational licensing using transaction-level data from a large online platform for home improvement services. We find that demand is more responsive to a professional's reviews than to the professional's platform-verified licensing status. We show some evidence that consumers view licenses and reviews as substitutes. We confirm the generality of our findings off the platform in an independent consumer survey. Combining state-level licensing regulation data with platform microdata, we find that more stringent requirements are associated with less competition, higher prices, and no increase in demand or consumer satisfaction.

Suggested Citation

  • Chiara Farronato & Andrey Fradkin & Bradley J. Larsen & Erik Brynjolfsson, 2024. "Consumer Protection in an Online World: An Analysis of Occupational Licensing," American Economic Journal: Applied Economics, American Economic Association, vol. 16(3), pages 549-579, July.
    • Handle: RePEc:aea:aejapp:v:16:y:2024:i:3:p:549-79
    DOI: 10.1257/app.20210716
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    Cited by:

    1. Pellizzari, Michele & Basso, Gaetano & Brandimarti, Eleonora & Pica, Giovanni, 2021. "Quality and selection in regulated professions," CEPR Discussion Papers 15674, C.E.P.R. Discussion Papers.
    2. Mocetti, Sauro & Rizzica, Lucia & Roma, Giacomo, 2021. "Regulated occupations in Italy: Extent and labour market effects," International Review of Law and Economics, Elsevier, vol. 66(C).
    3. Bruhn, Jesse & Imberman, Scott & Winters, Marcus, 2022. "Regulatory arbitrage in teacher hiring and retention: Evidence from Massachusetts Charter Schools," Journal of Public Economics, Elsevier, vol. 215(C).
    4. Kihwan Bae & Edward Timmons, 2023. "Now You Can Take It with You: Effects of Occupational Credential Recognition on Labor Market Outcomes," Working Papers 23-03, Department of Economics, West Virginia University.
    5. Ben Posmanick & Alex Obie & Bobby Chung, 2024. "Licensed Professionals and Corporate Board Performance: The Effect of the Sarbanes-Oxley Act on the Audit Committee," Working Papers 2024-03, University of South Florida, Department of Economics.
    6. Alan Benson & Aaron Sojourner & Akhmed Umyarov, 2020. "Can Reputation Discipline the Gig Economy? Experimental Evidence from an Online Labor Market," Management Science, INFORMS, vol. 66(5), pages 1802-1825, May.
    7. Solimine, Philip & Isaac, R. Mark, 2023. "Reputation and market structure in experimental platforms," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 528-559.
    8. Xiang Hui & Meng Liu, 2022. "Quality Certificates Alleviate Consumer Aversion to Sponsored Search Advertising," CESifo Working Paper Series 9886, CESifo.
    9. Jose Maria Barrero & Nicholas Bloom & Steven J. Davis, 2020. "COVID-19 Is Also a Reallocation Shock," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(2 (Summer), pages 329-383.
    10. Morris M. Kleiner & Evan J. Soltas, 2019. "A Welfare Analysis of Occupational Licensing in U.S. States," NBER Working Papers 26383, National Bureau of Economic Research, Inc.
    11. Aurelija Burinskienė, 2023. "Competition Prospects in Regulated Market of a Baltic Country," Economies, MDPI, vol. 11(2), pages 1-12, February.
    12. Ginger Zhe Jin & Zhentong Lu & Xiaolu Zhou & Chunxiao Li, 2020. "The Effects of Government Licensing on E-commerce: Evidence from Alibaba," NBER Working Papers 27884, National Bureau of Economic Research, Inc.
    13. Bruno Deffains & Dominique Demougin, 2023. "Capitation taxes and the regulation of professional services," European Journal of Law and Economics, Springer, vol. 55(2), pages 167-193, April.
    14. Ilya Kukaev & Edward J. Timmons, 2023. "Certifiably employable?: The effects of occupational regulation on unemployment duration," Working Papers 23-02, Department of Economics, West Virginia University.
    15. Dustin Chambers & Colin O’Reilly, 2022. "The economic theory of regulation and inequality," Public Choice, Springer, vol. 193(1), pages 63-78, October.
    16. Imke Reimers & Joel Waldfogel, 2021. "Digitization and Pre-purchase Information: The Causal and Welfare Impacts of Reviews and Crowd Ratings," American Economic Review, American Economic Association, vol. 111(6), pages 1944-1971, June.
    17. Peter Q. Blair & Mischa Fisher, 2022. "Does Occupational Licensing Reduce Value Creation on Digital Platforms?," NBER Working Papers 30388, National Bureau of Economic Research, Inc.
    18. Han, Xintong & Li, Yushen & Wang, Tong, 2023. "Peer recognition, badge policies, and content contribution: An empirical study," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 691-707.
    19. Kyle Rozema, 2021. "Does the Bar Exam Protect the Public?," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 18(4), pages 801-848, December.
    20. Andrey Fradkin & David Holtz, 2023. "Do Incentives to Review Help the Market? Evidence from a Field Experiment on Airbnb," Marketing Science, INFORMS, vol. 42(5), pages 853-865, September.
    21. McMullen, Jeffery S. & Ding, Amy Wenxuan & Li, Shibo, 2021. "From cultural entrepreneurship to economic entrepreneurship in cultural industries: The role of digital serialization," Journal of Business Venturing, Elsevier, vol. 36(6).
    22. Brian Meehan & E. Frank Stephenson, 2020. "Reducing a Barrier to Entry: The 120/150 CPA Licensing Rule," Journal of Labor Research, Springer, vol. 41(4), pages 382-402, December.
    23. Boto-García, David & Balado-Naves, Roberto & Mayor, Matías & Baños-Pino, José Francisco, 2023. "Consumers' demand for operational licencing: evidence from Airbnb in Paris," Annals of Tourism Research, Elsevier, vol. 100(C).

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    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • L74 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Construction
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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