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‐tnidwives (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.