When it comes to barbers, I’m happy to let a free market blossom. A bad haircut is not a big deal. When it comes to more sensitive services, the case for more restrictive regulation of entry seems a lot stronger. But the question still remains of “how restrictive?” Clearly in an abstract sense, making it tougher to become a dentist will probably make dental services more expensive but the hope would be that you’re also increasing quality. Since regulation is done on a state-by-state basis, it’s possible to observe variance in licensing stringency and then assess the impact on cost and outcomes.
Morris Kleiner and Robert Kudrle did just that in “Does Regulation Affect Economic Outcomes? The Case of Dentistry” by looking at data from Air Force recruits:
This study examines the role of variations in occupational licensing policies in improving the quality of services provided to consumers and the effect of restrictive regulations on the prices of certain services and on the earnings of practitioners. Theory suggests that more restrictive licensing may raise prices, but that it may also raise demand by reducing uncertainty about the quality of the services. This paper uses unique data on the dental health of incoming Air Force personnel to analyze empirically the effects of varying licensing stringency among the states. We find that tougher licensing does not improve outcomes, but it does raise prices and earnings of practitioners. Our results cast doubt on the principal public interest argument in favor of more stringent state licensing practices.
That’s not to say we should totally unregulate this sphere of activity. But we should resist efforts to make existing regulations more stringent and unusually stringent states should get laxer. Then hopefully we can see where that leaves us.
I keep harping on this stuff because in the long-run the only way to ensure affordable high-quality health care services to everyone is to reform the manner in which health care services are provided so as to prevent costs from increasing much more rapidly than quality. It’s precisely because the prima facie case for regulation of the health care industry is strong that this sector has become a hotbed of cartelization and nonsensical barriers to entry that require scrutiny.