Thoughts on economics and liberty

A reputational platform: a market-based alternative to occupational licensing

In general, occupational licensing (OL) is one of the least effective ways to deal with problems about trustworthiness including trustworthy delivery of a product of agreed quality and in a timely manner. There is a good amount of literature on this issue.

I am thinking of a voluntary reputational platform to deal with information asymmetry issues and ultimately eliminate the need for occupational licensing. [See my FB post here.]

Historically, reputation in its various forms and shapes has played a pivotal role in managing problems of quality. That is one reason why Adam Smith opposed occupational licensing for doctors and preferred the market’s own solution to remedy any quality problems.

Daniel Klein in his book, Reputation: Studies in the Voluntary Elicitation of Good Conduct, has explored this issue at length from the foundational perspective.

New technology has allowed a vast number of new mechanisms to strengthen reputational feedback. eBay and Uber are a few of the many companies that are using reputational mechanisms to drive business.

The Productivity Commission in its report on Shifting the Dial (Paper 13) has alluded to opportunities to use the internet to empower consumers. The Commission did not fully investigate this matter and the huge potential to supplement, if not replace occupational licensing.

We need to consider opportunities to replace as much of occupational licensing with a voluntary reputational platform. I consider that the government should initially build such a generic platform covering all licensed occupations. In due course such a platform could become commercially viable and be sold to the market.

The platform should ensure that only genuine consumers are able to provide feedback on individual professionals (say, doctors or builders). The professionals being rated would be in a position to read the names of the reviewers while the public would only see the review, not the reviewer’s name. The professionals being rated would also have the right to provide their own view on any adverse situation reported by a customer. It is important that the professionals relinquish any recourse to defamation laws against consumers who provide honest feedback, as part of entering this platform.

Such a platform being voluntary would ensure that only good professionals step forward to be rated. Customers will, of course, not provide custom to anyone who is not willing to get himself/herself fated. Those who agree to be rated would also have an incentive to provide excellent quality of service to ensure continued high ratings. This would improve the quality of services provided by the professionals. The last period problem would remain but it is likely to be relatively small, and other mechanisms could be designed to deal with it.

Such a platform can initially run in parallel with existing schemes and over time, after it is evaluated, it could allow the scrapping of such schemes.

We can call this platform Citizens’ Eye.

In 2011, Poland decided to liberalise access to 250 of the 380 currently regulated professions. Need to find out more about this bold experiment.

Overall, I think it is high time to think of a new models that support the market instead of requiring major government involvement – which merely increases inefficiency and makes things worse.

Here’s a generic framework to look at this issue:

ADDENDUM

My FB post here.

Why do we need to license GPs? They are harmless creatures. The worst they can do is to misdiagnose – in which case one has to go to the specialist in any case.

Even most specialists can do no serious harm. So only those with the most potential for harm (mainly surgeons) need to be under the scrutiny of government. Even that can be minimised through a voluntary reputational platform.

ADDENDUM

Yet another REALLY BAD case – directly attributable to the farce called occupational licensing:  Dozens of complaints lodged against disgraced gynaecologist Emil Gayed

 

KEYWORDS

Citizens’ Eye

Sanjeev Sabhlok

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One thought on “A reputational platform: a market-based alternative to occupational licensing
  1. Raj

    I suspect government intervention here would not quite be needed too Sanjeev.. I agree that the regulation is all but unjust and pointless.

    I propose we lay out a date for abolition of set regulation say, an year from now.. in that way we can prepare private industry to create their own mechanisms of rating agencies who could onboard various doctors/professionals who’d be given their own ratings.

    The private industry is likely to figure of extremely efficient, unique, user-driven, fast, responsive and mostly reliable ratings for doctors using innovative mechanisms.

    I’m sure its possible, if they’re given a bit of time.. so it could perhaps be a bit of a “demonetisation” :) , but one wherein we tell then when the regulations go off books, preferably 12 months.