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    Consumer Protection in an Online World: An Analysis of Occupational Licensing
    06 Mar 2020Working Paper Summaries

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

    by Chiara Farronato, Andrey Fradkin, Bradley Larsen, and Erik Brynjolfsson
    This paper uses new data collected by a digital platform to study the role of occupational licensing laws on individual choices and market outcomes. Results suggest that more stringent licensing laws restrict competition but do not lead to improvements in customer satisfaction.
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    Author 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.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: January 2020
    • HBS Working Paper Number: NBER Working Paper Series, No. 26601
    • Faculty Unit(s): Technology and Operations Management
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    Chiara Farronato
    Chiara Farronato
    Assistant Professor of Business Administration
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