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

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

  • Chiara Farronato
  • Andrey Fradkin
  • Bradley J. Larsen
  • Erik Brynjolfsson
American Economic Journal: Applied Economics (Forthcoming)

Abstract

We study the demand and supply implications of occupational licensing using transaction-level data from a large online platform for home improvement services. We find that demand is more responsive to a professional’s reviews than to the professional’s platform-verified licensing status. We show some evidence that consumers view licenses and reviews as substitutes. We confirm the generality of our findings off the platform in an independent consumer survey. Combining state-level licensing regulation data with platform micro-data, we find that more stringent requirements are associated with less competition, higher prices, and no increase in demand or consumer satisfaction.

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