Licensing describes the set of regulations that limit service provision to individuals or entities who meet state-established criteria. Despite claims that licensure increases service quality, the effect of licensure on consumption quality is ambiguous. That fact that service providers actively promote licensing has led to the suspicion that licensing benefits these groups at the expense of providers of competing services or consumers. Also at issue is whether information asymmetries or agency costs are strong enough to warrant government intervention. Many believe that, in the absence of government intervention, markets would generate sufficient information through reputation and other mechanisms to meet the needs of consumers.
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