The Welfare Cost of Quality Changes Due to Professional Regulation

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We present a method for measuring the welfare cost of legislated restrictions on the activities of professionals in markets where consumers can substitute between brands of different quality. In the market for vision examinations by optometrists, quality changes due to three selected professional regulations result in economic profits for producers of some $140 million, and positive changes in quality due to the regulations are not valued by consumers at their marginal cost. A small annual welfare loss of about $8 million results from these professional regulations. When quantity effects are also included, the welfare loss increases to $16 million.