Specialization and Regulation: The Rise of Professionals and the Emergence of Occupational Licensing Regulation

This paper explores the origins and effects of occupational licensing regulation in late nineteenth and early twentieth century America. Was licensing regulation introduced to limit competition in the market for professional services at the expense of efficiency? Or was licensing adopted to reduce informational asymmetries about professional quality? To investigate these hypotheses, we analyze the determinants of licensing legislation and the effect of licensing on entry into eleven occupations. We also examine the impact of medical licensing laws on entry into the medical profession, physician earnings, mortality rates, and the incidence of medical malpractice. We believe that, at least for the Progressive Era, the evidence is more consistent with the asymmetric information hypothesis than the industry capture hypothesis.