Regulation of Charlatans in High‐Skill Professions

Abstract

We model a market for a skill in short supply and high demand, where the presence of charlatans (professionals who sell a service they do not deliver on) is an equilibrium outcome. In the model, reducing the number of charlatans through regulation lowers consumer surplus because of the resulting reduction in competition among producers. Producers can benefit from this reduction, potentially explaining the regulation we observe. The effect on total surplus depends on the type of regulation. We derive the factors that drive the cross-sectional variation in charlatans (regulation) across professions."We write today to ask what specific steps FINRA will take to address the pervasive misconduct among its financial advisers and to protect families looking to invest their hard-earned savings." U.S. Senators E. Warren and T. Cotton, Letter to FINRA May 11, 2016 AN IMPORTANT ROLE FOR GOVERNMENT in the modern economy concerns the regulation of standards and information disclosure for goods and services. As the introductory quote from Senators Warren and Cotton illustrates, the justification that legislators use for this role is generally the protection of consumers. Indeed, the assumption that regulation is in consumers' interest is often taken for granted. In this paper, we argue that this assumption requires more rigorous justification. We demonstrate in our model that in highly regulated sectors of the economy for goods and services that are in short supply and

Gas, Guns, and Governments: Financial Costs of Anti-ESG Policies

“…The exit of such banks with the largest dealer networks may lead to deterioration in distribution quality and adverse consequences for financial stability. Our results also comple-ment the more extensive literature on competition in financial markets (Berk and Van Binsbergen, 2022;Clark, Houde and Kastl, 2021). The variation from these rule changes are appropriate for causal inference as they were unexpected and unlikely to be related to endogenous bank entry, bank integration decisions, or changes in municipal creditworthiness.…”

Prestige, Promotion, and Pay

“…The economic literature on status typically assumes that the value of an extra dollar (or consumption) is higher for those with higher status. This assumption is made by Hopkins and Kornienko (2004), Becker, Murphy, and Werning (2005), Auriol and Renault (2008), 7 Examples include Murphy, Shleifer, and Vishny (1991), Philippon (2010), Glode, Green and Lowery (2012), Thanassoulis (2012), Strobl and Van Wesep (2013), Bond and Glode (2014), Axelson and Bond (2015), Bolton, Santos, and Scheinkman (2016), Glode and Lowery (2016), Acharya, Pagano, and Volpin (2016), Bénabou and Tirole (2016), Biais and Landier (2020), Waters (2022), andBerk andvan Binsbergen (2022). Ray andRobson (2012), andAuriol, Friebel, andvon Bieberstein (2016), among others.…”