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Licensing with skill acquisition

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  • Siegel, Ron

Abstract

Licensing is often viewed as a tool to enforce guild-like practices and restrict access to certain professions. I consider an activity that requires a license because it causes an externality. When individuals cannot increase their competency beyond their intrinsic ability, social welfare is maximized by a licensing standard that sorts individuals optimally. But when individuals can acquire skill to increase their competency, I show that any licensing standard that increases social welfare must be higher than the one that sorts individuals optimally conditional on their competency. In this sense, standards that are higher than what ex-post optimal sorting prescribes are often socially optimal and are not necessarily indicative of guild-like practices.

Suggested Citation

  • Siegel, Ron, 2020. "Licensing with skill acquisition," Economics Letters, Elsevier, vol. 195(C).
    • Handle: RePEc:eee:ecolet:v:195:y:2020:i:c:s0165176520302822
    DOI: 10.1016/j.econlet.2020.109456
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    References listed on IDEAS

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    1. Morris M. Kleiner, 2000. "Occupational Licensing," Journal of Economic Perspectives, American Economic Association, vol. 14(4), pages 189-202, Fall.
    2. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-1346, December.
    3. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(2), pages 409-451.
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    Cited by:

    1. Bizzotto, Jacopo & Harstad, Bård, 2023. "The certifier for the long run," International Journal of Industrial Organization, Elsevier, vol. 87(C).

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