Does Regulation Affect Economic Outcomes? the Case of Dentistry

TLDR

Theory suggests that more restrictive licensing may raise prices and at the same time raise demand by reducing uncertainty about the quality of the services. The study investigates how variations in occupational licensing policies affect service quality, consumer prices, and practitioner earnings. This article uses unique data on the dental health of incoming Air Force personnel to empirically analyze the effects of varying licensing stringency among the states. Tougher licensing does not improve outcomes but raises consumer prices and practitioner earnings, undermining the public‑interest rationale for stricter state licensing.

Abstract

This study examines the role of variations in occupational licensing policies in improving the quality of services provided to consumers and the effect of restrictive regulations on the prices of certain services and on the earnings of practitioners. Theory suggests that more restrictive licensing may raise prices and at the same time raise demand by reducing uncertainty about the quality of the services. This article uses unique data on the dental health of incoming Air Force personnel to analyze empirically the effects of varying licensing stringency among the states. It finds that tougher licensing does not improve outcomes, but it does raise prices for consumers and the earnings of practitioners. These results cast doubt on the principal public interest argument in favor of more stringent state licensing practices.