The Economics of Professional Ethics: Should the Professions be More Like Business?

Recent government policy has favored making the professions more like business. On this policy, "cheating" (exploitation of asymmetric information or neglect of externalities) is prevented by regulation; drawbacks include high transaction costs of regulation, and consequent dangers of ineffectiveness and adverse selection. This paper considers a possible rationalization of traditional competition-reducing arrangements in the professions, viewed as an alternative policy. These arrangements prohibit practices that offer a temptation to cheating, even at the cost of restricting competition. They rely on the prevalence of a distinctive professional morality in order to prevent restriction of competition from leading to monopolistic exploitation.