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Public provisions of professional services
Author(s) -
Szczygielski Krzysztof
Publication year - 2021
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12484
Subject(s) - credence good , credence , government (linguistics) , quality (philosophy) , public good , goods and services , professional services , business , certification , market failure , public economics , economics , microeconomics , public relations , finance , information asymmetry , market economy , epistemology , political science , linguistics , statistics , philosophy , mathematics , management
Professional services are credence goods provided by certified experts (professionals). The most prominent examples of professional services are medical or legal services. Interestingly, the markets for such services are often subject to partial public provision: there is a low‐end segment, where the services of basic quality are provided for free and professionals are reimbursed by the government, and a high‐end segment, where free‐market principles prevail. We examine the efficiency of this market structure. To this end we apply a modified version of the model of the market for goods with credence attributes proposed by Baron. We demonstrate that partial public provision can correct for the market failure caused by the credence good nature of professional services, even in the presence of regulation costs. The efficiency gain from partial public provision is due to a combination of quality and price effects.