In yesterday’s discussion, we examined how it is possible for medical licensing to be responsible for a lower average quality in the medical profession than would prevail in a world without licensure. Today, I hope to explain briefly another consequence of medical licensure.

This idea comes from a phenomenal paper by Harold Demsetz called, “Barriers to Entry” that I have been returning to of late. In this paper, among the many observations Demsetz makes includes one that it is not at all clear that medical licensure leads to higher quality medical treatment for reasons different than I argued yesterday.

How so?

Well, suppose you take the claims from yesterday as false, and argue that medical licensing does, in fact, improve the average quality of practitioners in medicine. What this means is that we will have a medical output mix which favors the practice of fewer, better trained doctors, all charging higher fees than a world of open competition where we would have more “basic” doctors charging lower fees.

Why might this not always result in better quality medicine? Ask yourself how you would respond if all restaurants charging less than $25 per entree were closed. The lack of lower priced options would likely cause us to substitute away from the higher priced foods by cooking more for ourselves, or exercising less, or some other way of avoiding the high prices if we can manage it. It is not clear that this substitution would be an improvement over the lower-quality restaurants that we normally attend (for example, as much as I do not like Applebees, I cannot cook as well as they do). Thus, the limitation in the medical profession of only high priced, high quality doctors will encourage substitution away from those medical services. It is not clear then how the overall quality of medical treatment would be in light of this substitution.

As Demsetz argues, the issue of licensure is not just one of “insiders vs. outsiders” (as I like to claim) nor is it profits nor even barriers to entry, but rather the choice of output mixes we would like to see in a particular profession. Which output mix is most “desirable” from an efficiency perspective is at a minimum an empirical question, even if you wish to ignore the ethical questions of whether producers and consumers ought to be able to exercise their free choice in whether to become a doctor or to patronize a particular doctor.