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

SIEPR
Apr 2020
Working Paper
20-013
By  Chiara Farronato, Andrey Fradkin, Bradley J. Larsen, Erik Brynjolfsson

We study the effects of occupational licensing on consumer choices and market outcomes in a large online platform for home improvement services. Exploiting exogenous variation in the time licenses are displayed on the platform, we find that platformverified licensing status is unimportant for consumer decisions relative to review ratings and prices. We confirm this result in an independent consumer survey. Licensing restrictions differ widely by state, and persist despite the growing potential of online reputation to reduce information asymmetries. More stringent regulations are associated with less competition, higher prices, and no improvement in consumer satisfaction for transactions on the platform.