Occupational Licensing of a Credence Good: The Regulation of Midwifery

Abstract

A general theoretical and empirical model of the impact of regulation on supply and demand (prices and quantities) is developed in this paper. The regulation of midwifery services—of certified nurse-midwives (CNMs)—relative to obstetricians (OBs) is analyzed within this framework. Demand-side (quality assurance) effects are distinguished from supply-side (Stigler-Peltzman) effects in the model. Since both unambiguously predict a price increase, we focus on the regulatory impact on quantity. We find, within the empirical model, that while both effects are present, supply-restricting effects dominate quality assurance in the U.S. market for CNM services. When mean regulations are compared to minimum regulations in the sample, CNM births increase from just under 6% of all births to a little over 11%. On net, regulation reduces the quantity of CNM births.