Many occupations require a license before a practitioner (or service provider) can operate. The full list of licensed occupations differs by jurisdiction (here is New Zealand's list), but in most places doctors, dentists, and nurses are included in the list. However, economists are not. Olivia Wills recently wrote a great post on the Asymmetric Information Substack today questioning that outcome. She started by outlining four reasons why the government might put a licensing regime in place:
Safety. Some roles, like those covered by the Health Practitioners Competence Assurance Act 2003, directly impact public health and safety. That Act’s purpose is to protect the health and safety of members of the public by providing mechanisms to ensure the life long competence of health practitioners. By setting minimum standards for education, training, and experience, regulatory bodies ensure that practitioners have the necessary knowledge and skills to do their work.
Reputation. Regulation helps uphold the reputation of a profession by setting standards. For example, an experience with one rogue chiropractor could put you off the whole profession, but by limiting who can call themselves chiropractors to those with suitable experience and qualification, there’s a reduced risk of reputational damage to the non-rogues.
Frameworks for when it goes wrong. No matter what restrictions are put on entering a profession, there will always be some rogue players who cause harm. Registration also means an established process for de-registration (e.g. doctors can be struck off the register, and barristers can be disbarred). These steps prevent further harm, allow justice and voice for victims, and again uphold the reputation of the profession.
Reducing information asymmetry. Regulated professions tend to involve specialised knowledge that can be difficult for the rest of us to assess. If I’m injured and looking for a physiotherapist, the idea of choosing based on who has the best search engine optimisation might not get me the best results. A list of accredited practitioners gives a level of assurance about qualifications and competence.
When I discuss licensing in my ECONS101 class, I focus only on the first (safety). Government doesn't want consumers to come to great harm (physically, financially, or psychologically) by dealing with unlicensed service providers. In my ECONS102 class, we also consider asymmetric information. Consumers don't know which service providers are high quality, and a licensing system can overcome that if it ensures that only high-quality service providers with appropriate qualifications are licensed. Where there is both a risk of substantial harm and asymmetric information, that provides a good justification for licensing. This is the reason for only allowing licensed doctors, dentists, or nurses to operate (pun intended).
However, in her post Wills only considers licensing as a possibility, when there is another option: certification. Where licensing prohibits unlicensed service providers from operating, certification allows both certified and uncertified providers to operate. A certification system has lower transaction costs than a licensing system, and doesn't provide the certified service providers with as much market power as licensed service providers have (since it doesn't keep uncertified service providers out of the market, which keeps competition higher than is the case for an occupation governed by a licensing system). Certification makes more sense where there is asymmetric information (about the quality of service providers), but the degree of harm is unlikely to be great. Certification provides consumers with information about the likely quality of the service providers, but doesn't fully exclude the lower-quality service providers from the market. In New Zealand, accountants have a certification regime (they can be Chartered Accountants, or not), but not a licensing regime. This often comes as a surprise to my students.
Anyway, Wills' post is about whether or not economists should be licensed. On that point, she notes that:
In practice, economics is best when exploring new ideas and methodologies, and signing up to an overarching way of working is likely to inhibit this freedom. The reality of enforcing regulation would present practical challenges, particularly in defining the boundaries of the profession. Determining who should be subject to regulation and who should be exempt could be a complex, unfruitful task.
Yet the capacity for economists to cause harm is inescapable. This is why I conclude that, while formal accreditation is neither feasible nor desirable, an ethical declaration would be a useful reminder of our role and responsibility. A Code of Ethics might go some way to encourage humility in our estimations, models and predictions, and appreciate the role our own world views take when informing our work.
When it comes to the strength of the regime governing an occupation, a voluntary Code of Ethics is an even weaker option than certification. It does little to prevent harm, since economists would be free to adhere to the Code or not. It also doesn't solve the asymmetric information problem, if anyone can sign up to the Code at little to no cost.
It seems to me that, in terms of interactions with 'consumers' (broadly defined), there is little for economists to gain from a Code of Ethics. It comes with real practical problems. Economists have legitimate disagreements on models, data analysis, and policy implications, and even what constitutes best practice in those areas. It's not clear that a Code of Ethics would solve those issues, and if not, then it would do little to improve the reputation of economists in the eyes of the general public.
On the other hand, there are positive aspects to a Code of Ethics, if it was focused on some of the problems that are internal to the discipline (rather than those affecting 'consumers'). For example, there is a persistent gender gap in economics (see this post, and the links at the end of it). A Code of Ethics, albeit voluntary, would at least give the impression (and associated warm glow for those who signed up to it) that economics is addressing its internal problems. Maybe it would be one more step in that direction.
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