Bryan Caplan  

Your Sort Is Prohibited: A Licensing Dialog

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When you shop online, vendors usually give you a bunch of different ways to sort your options.  Take Amazon:
sort.jpg
One popular sorting option - especially for customers with low income - is "Price: Low to High."  You've probably used it yourself many times. 

This doesn't mean, of course, that people who use this option automatically buy the very cheapest item.  Everyone knows that the cheapest tends to be low-quality.  But starting with the cheapest options is still a great rule of thumb.  If the cheapest option has stellar reviews, you can just buy the cheapest.  If the cheapest has less-than-stellar reviews, you can scroll down the page to quickly discover how much extra you have to pay to get the quality you want.

So what?  Well, imagine that the next time you click on the "Price: Low to High" option, a do-gooder pops up on your screen and starts the following dialog:

Do-Gooder: Sorry, Sorting by Price: Low to High has just been banned.  You're going to have to sort your options some other way.

You: Banned?  Why?

Do-Gooder: People who use this option tend to buy sub-standard products.  We need to protect them.

You: You aren't "protecting" anyone.  You're just making it harder for people to find attractive deals.

Do-Gooder: These deals may seem attractive, but they're not.  You buy cheap, you get cheap.

You: But everyone already knows this!  People buy the cheap stuff because they value their money more than higher quality.

Do-Gooder: Aha, so you're one of those dogmatic market fundamentalists.  <sarcasm>Let everyone buy whatever they want, and let competition take care of them.</sarcasm>  Give me a break.

You: It's not "dogmatic market fundamentalism." It's common sense.  Sometimes extra quality isn't worth it.  And sometimes the cheap options are actually high-quality.

Do-Gooder: Yes, sometimes the cheap options are fine.  But sometimes they aren't.  What do you propose to do about it?

You: Well, I personally won't do anything about it.  But the market uses reputation to protect people.  Vendors who sell junk get bad reviews - and bad reviews hurt sales.

Do-Gooder: But what about people who don't read reviews?

You: Sooner or later, they'll get burned.  Then maybe they'll start reading reviews before they buy.

Do-Gooder: <sarcasm>Very compassionate.</sarcasm>

You: Why should everyone have to suffer to protect a few irresponsible people?

Do-Gooder: Well, in that case, why don't we just get rid of occupational licensing?  If reputation works so well, why license plumbers or electricians?  Or doctors for that matter?!

You: Well, we don't want people to hire bad plumbers, electricians, or doctors.

Do-Gooder: Gee, now you sound like me.  Whatever happened to "You aren't 'protecting' anyone.  You're just making it harder for people to find attractive deals"?

You: The unlicensed deals may seem attractive, but they're not.  You buy cheap, you get cheap.

Do-Gooder: Deja vu!  Whatever happened to, "But everyone already knows this!  People buy the cheap stuff because they value their money more than higher quality."?

You: I see where this is going, and I don't like it.  This conversation is over.  [Click. Browser window closes.]

HT: Inspired by Dan Klein's excellent lecture on occupational licensing.



COMMENTS (17 to date)
Tom West writes:

The common-sense approach would seem to be an acknowledgement that not all markets are equal. In some, mistakes are easy to make (hard to find, easy to fake reputations) and in some the mistakes can be very costly.

There will be tendency for the population to want to be protected by means of regulation in those sort of markets, and left relatively unprotected in the majority of markets where we can accurately gauge reputation and making mistakes is not particularly costly.

Evan_S writes:
The common-sense approach would seem to be an acknowledgement that not all markets are equal. In some, mistakes are easy to make (hard to find, easy to fake reputations) and in some the mistakes can be very costly.

There will be tendency for the population to want to be protected by means of regulation in those sort of markets, and left relatively unprotected in the majority of markets where we can accurately gauge reputation and making mistakes is not particularly costly.

I don't see how this is "common sense." In areas in which mistakes are costly, wouldn't we actually expect customers to put MORE effort into researching reputations?

Thomas B. writes:

Slides were great, though I would have expected more to be said about reduced geographic mobility for skilled labor.

Philo writes:

If "You" is supposed to be *me*, I resent the imputation that I am soft on occupational licensing!

Hazel Meade writes:

I don't know why one would even bother to waste time arguing with a person like "do-gooder". There are only two classes of people who fall in this category. (A) Rent-seekers arguing in bad faith, and (B) Those who are economically illiterate and gullible enough to be taken in by A.

Once you get to "Aha, so you're one of those dogmatic market fundamentalists." it's not even worth bothering.

Daublin writes:

Nice that you voluntarily "lost" the debate.

One followon to the conversation is that in the Amazon sorting, the products *are* certified. You have to read the description to see how, but the certs are there.

What you do with that information is up to you. Just like it ought to be for contractors, doctors, and drugs.

Anonymous writes:


Hazel,

To be "illiterate or gullible enough" is just to be wrong. Correcting wrong beliefs is the very point of honest argument. What is the alternative to arguing with the "do-gooder" here?
I maybe wrong about your perception, but I feel from your comment that you believe most of the people that would fit the "do-gooder" character act in bad faith. I think you are wrong. I know many of these people. I used to be a lot more suspicious of the market myself. These people are trying to do the best with what they got. Engaging them, trying to persuade, is the most moral and most effective way to change whatever policy you might defend.

While I consider myself to be of the left, I believe that Bryan is one of the people on "the right" that has the greatest capacity to promote this kind of engagement. It's why I read this blog in the first place. Maybe he should be an example to everyone on the right.

NZ writes:

I'm assuming that [sorting by price: high to low] is also banned, since people would just use that and browse from the end backward.

Also, Do-gooder has the power to ban certain orderings of search results, but not to simply stop carrying the sub-standard products (via what must be some kind of protectionism, I guess)?

Anyway, both parties seem capable of comprehending the nuanced view that "sometimes extra quality isn't worth it," but that other times it is (for doctors and plumbers, for instance). It seems fairly straightforward to determine which times fall into which category, or at least to make the effort, but Do-Gooder, in spite of apparently recognizing this, doesn't seem interested in doing so. That puzzles me.

re: " In some, mistakes are easy to make (hard to find, easy to fake reputations) and in some the mistakes can be very costly."

You are missing an idea I suspect most here have already ecnountered, that the answer is voluntary private certification via competing providers rather than a 1 size fits all approach run by a monopolistic government entity. People can choose which provider to trust make the price/quality tradeoff themselves. If mistakes are costly then people will be motivated to look for a "seal of approval" and there will be a marketing advantage for people/companies that are certified.

Private certifications might even be optionally tied into insurance backing the work of those they approve to inspire more trust (requiring an ongoing fee from the professional). Obviously the same type of private seal of approval mechanisms can apply to products as well as to individuals.

Obviously for some services/products where mistakes aren't quite as costly, one answer is informal publicly created seals of approval which as someone already point outed exist in the form of say online reviews and ratings on Amazon.

Without government involvement there might be more professions and products with seals of approval. Therefore there may be a market which doesn't likely exist today for a "seal of approval" seal of approval to rate which seals to trust when you don't have time/desire to evaluate them yourself.

john hare writes:

As a contractor, I find it hilarious that occupational licensing protects people.It actually gives them a false sense of security while they are getting swindled by the lowest price as they don't feel the need for research. Several of the cookie cutter builders in Florida should be marched out in handcuffs if the codes were to be actually followed. An occupational license is no substitute for a solid reputation.

MingoV writes:

Occupational licensing does two things: It provides another source of revenue to the government and it shows that the licensee has the government-mandated credentials. A licensed professional can be exceptionally competent or a complete buffoon. The mechanisms for "unlicensing" the complete buffoons do not work.

I'm a pathologist, so I see the effects of physician screw-ups. I reported three cases of severe malpractice to state medical boards. None of the physicians had licensure revocation or suspension, and none received any practice restrictions or reeducation requirements.

I've had plumbers who knew less about plumbing that I do (and that isn't much). I've gone to licensed hair cutters who couldn't achieve a left-right symmetric haircut. Etc.

Licensure's small benefit of verifying credentials is outweighed by the misinformation conveyed to people who believe licensure is a guarantee of quality.

Tom West writes:

Why should everyone have to suffer to protect a few irresponsible people?

Isn't the other obvious answer:

"Because I'm one of those irresponsible people, and I'm the majority so why shouldn't we architect society to protect ourselves?"

egd writes:

What about the argument that government licensing provides a minimum standard? If there was no licensing requirement and I wanted to hire a plumber, I would have to shop around to find a competent plumber, costing me time and money. Occupational licensing requires that all plumbers have a minimum competence, so I don't have to waste time and money finding one.

As long as the benefits (saving time) outweigh the costs, is licensing a good idea?

This isn't my argument, simply one I've often heard repeated from people who favor licensing.

ThomasH writes:

Occupational Licensing is not a "do gooder" project; it is the use of state power to redistribute income upward like many other features of economic policy (payroll taxes, income tax deductions instead of refundable tax credits, etc.) Remember Tesla!

steve writes:

Licensing is a crock. It does very little to weed out poor guality. You have to practically kill a baby before you lose your medical license. While at the same time, it gives false assurances that the quality is high. Although, in my experience, many consumers don't really believe licensing equals quality and rely on word of mouth for reputations. In the absence of licensing, a more robust reputational system may develop.

Terran writes:

I think there is a qualitative difference between ranking products by price (and implied inverse quality) and enforcing minimum requirements. Professional licensure would be more analogous to requiring products to be listed by the underwriters' laboratories for safety and tested to meet federal communications commission standards for unintentional emissions. Just as most people seem to support professional licensure, it appears to me that most people support these requirements for products. So the majority is at least consistent across domains in the desire for the government to enforce minimum standards for products and services.

Tracy W writes:

Even when there is licensing, how good is the quality?

Conversation I had with the holiday-cover doctor on the phone shortly after I'd discovered my 6 week old baby had been exposed to whooping cough:
Doctor: Don't worry, it's not very infectious.
Me: really? I've been looking at NHS Direct and they say it's very infectious. They also say you can take preventative antibiotics.
Doctor: I'll get back to you.
(We got our antibiotics and didn't get whooping cough).

And who hires a plumber without getting a recommendation?

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