Consumers are less and less concerned about the licensing status of service professionals they hire. According to new research by Stanford University economist Brad Larsen, consumers place a much higher value on customer reviews and ratings and prices. The study, conducted jointly with Ciara Farronato of Harvard, Andrey Fradkin of Boston University, and Erik Brynjolfsson of MIT, analyzed hundreds of job categories within the home improvement sector, using data covering more than a million service requests that consumers throughout the United States posted on an online market platform in 2015.
"Consumers tend to heavily value prices and online reputation, but not the licensing status of professionals when they're picking whom to hire," Larsen, an assistant professor of economics and faculty fellow at the Stanford Institute for Economic Policy Research (SIEPR), said in an interview published on Phys.org. Larsen, Farronato, Fradkin, and Brynjolfsson's working paper, "Consumer Protection in an Online World: An Analysis of Occupational Licensing," was released by the National Bureau of Economic Research.
The researchers found that when consumers were hiring professionals through online platforms, they were more likely to choose providers who had more reviews, higher raters, and lower bidding prices. Through analysis of verification of licensing statuses on online platforms, the researchers determined licensing status essentially made no difference on consumers' hiring decisions.
The study found that online reviews and ratings are becoming a substitute for upfront screening and ensuring service quality, potentially devaluing the importance of occupational licensing laws. The researchers also determined the widespread availability of alternative quality checks, such as online reviews, has reduced the level of regulatory stringency needed to ensure quality service without the presence of online reviews and ratings.
The researchers also conducted a survey of individuals who hired a home improvement professional in the past year. Of the 5,200 respondents, less than 1% listed licensing within the top three reasons for their hiring decision. Instead, prices, reviews, and recommendations were top factors for renovating homeowners.