Working Paper: CEPR ID: DP17367
Authors: Frank Verboven; Biliana Yontcheva
Abstract: We study entry restrictions in a private monopoly: the Latin notary system. Under this widespread system, the state appoints notaries and grants them exclusive rights to certify various important economic transactions, including real estate, business registrations, and marriage and inheritance contracts. We develop an empirical entry model to uncover the current policy goals behind the geographic entry restrictions. The entry model incorporates a spatial demand model to infer the extent of market expansion versus business stealing from entry, and a multi-output production model to determine the markups for real estate and other transactions. We find that the entry restrictions primarily serve producer interests, and give only a small weight to consumer surplus, even conditional on the current high markups. We subsequently perform policy counterfactuals with welfare-maximizing and free entry. We show how reform would generate considerable welfare improvements, and imply a substantial redistribution towards consumers without threatening geographic coverage.
Keywords: entry restrictions; occupational licensing; regulatory policy
JEL Codes: L43; L50; L84; L88
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state's regulatory framework (K23) | industry profits (D33) |
| entry restrictions (Z38) | industry profits (D33) |
| entry restrictions (Z38) | consumer surplus (D46) |
| allowing additional entry (Y60) | overall welfare (I31) |
| entry restrictions (Z38) | consumer surplus gains (D46) |
| fee reductions + increased entry (Z38) | redistribution of economic benefits (H23) |
| reforms leading to welfare-maximizing entry (D69) | consumer surplus gains (D46) |
| entry restrictions (Z38) | market power (L11) |