The University of Chicago Press

Does Regulation Affect Economic Outcomes?
The Case of Dentistry

Author(s): Morris M. Kleiner and Robert T. Kudrle
Source: Journal of Law and Economics, Vol. 43, No. 2 (Oct., 2000), pp. 547-582
Published by: The University of Chicago Press
Stable URL: http://www.jstor.org/stable/725678
Accessed: 08/09/2010 23:32
Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at
http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless
you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you
may use content in the JSTOR archive only for your personal, non-commercial use.
Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at
http://www.jstor.org/action/showPublisher?publisherCode=ucpress.
Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed
page of such transmission.
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For more information about JSTOR, please contact support@jstor.org.
The University of Chicago Press is collaborating with JSTOR to digitize, preserve and extend access to Journal
of Law and Economics.
http://www.jstor.org
AFFECTECONOMIC
DOES REGULATION
OUTCOMES?THE CASEOF DENTISTRY*
MORRISM. KLEINER and ROBERTT. KUDRLE
Universityof Universityof
Minnesota and the Minnesota
National Bureau of
Economic Research
ABSTRACT
This study examinesthe role of variationsin occupationallicensing policies in

improvingthe qualityof servicesprovidedto consumersandthe effect of restrictive
regulationson the prices of certainservices and on the earningsof practitioners.
Theory suggests that more restrictivelicensing may raise prices and at the same
time raise demandby reducinguncertaintyaboutthe qualityof the services. This
articleuses unique data on the dental health of incomingAir Force personnelto
analyzeempiricallythe effects of varyinglicensing stringencyamongthe states.It
finds thattougherlicensingdoes not improveoutcomes,but it does raiseprices for
consumersand the earningsof practitioners.These resultscast doubton the princi-
pal public interestargumentin favor of more stringentstatelicensingpractices.
I. INTRODUCTION
Do morerestrictiveoccupational licensingstatutesand administrative

procedures enhance the qualityof services receivedby consumers?Do
morerestrictive licensingpoliciesreducethe growthof prac-
occupational
titionersupply?Do tougheroccupational licensingprovisionsincreasethe
pricesof the servicesprovidedand raise the earningsof practitioners?
There are two major views on these questions. One perspective sees more
restrictivelicensing as an unnecessarybarrierto occupationalentry that
mainly serves the interestsof practitionerswith little or no benefit to the
* The authors want to thank Brian Grote, Hwikwon Ham, Warren Lubline,
Ingang Na,
Yongjin Nho, Lekha Subaiya, Keith Vargo, and Donghoon Yang for their assistance with
this project. We especially want to thank Judith Levin Marshall, D.D.S., for her valuable
consultation on the interpretation of the dental health information used in this study. We also
thank John Budd, Richard Butler, Gary Engelhardt, Richard B. Freeman, Jonathan Gruber,
Maria Hanratty, and Sam Peltzman for comments on earlier versions of this study as well as
participants at seminars at the London School of Economics, Princeton University, the Uni-
versity of Chicago, the University of Minnesota, and the U.S. Department of Justice. The
Center for Labor Policy at the University of Minnesota provided financial support.
[Journal of Law & Economics, vol. XLIII (October 2000)]

? 2000 by The University of Chicago. All rights reserved. 0022-2186/2000/4302-0020$01.50
547
548 THE JOURNAL OF LAW AND ECONOMICS
public.'The main effects are assumedto be higherprices and, potentially,

a negativeeffect on the qualityof servicesreceivedby consumers.2Another
perspectivefocuses on the role thatoccupationallicensingplays in reducing
uncertaintyin the mindsof consumersaboutthe qualityof the product.3In
this view, licensing is also seen as a way of encouragingthe formationof
humancapital,the primarymeans to enhancethe qualityof services pro-
vided by the regulatedpractitioner.4 Further,informationasymmetrybe-
tween sellers and consumersmakes licensing a way of improvingservice
quality.Additionally,accordingto this view, licensing improvesoutcomes
by truncatingthe bottomof the qualitydistribution.Unfortunately,no rigor-
ous empiricalanalysishas been able to addressthese competingeffects for
a majoroccupationin the UnitedStates.In this studywe examinethe effect
of relativelymore restrictivelicensing statutesand administrativepractices
on the outcome of services rendered,the prices of those services, and the
earningsof practitioners.
Occupationallicensurehas grown dramatically:in 1950 there were ap-
proximately70 licensed occupations,but by the late 1970s therewere over
500 covering about 18 percentof the U.S. workforce."With the shift to a
more service-orientedeconomy, the licensed sector is expected to grow
more rapidlythanthe rest of the labormarket.
Studieshave comparedthe economiccosts of state-by-statelicensing to
a system of nationwideendorsement,wherebypractitionerslicensedin one
state are admittedto practicein all other states withoutadditionalrestric-
tions.6A policy of nationwideendorsementrepresentsa potentialpolicy re-
form, since the proposalis often supportedby a majorityof the members
of a professionrelativeto deregulationand could be adoptedby national
professionalassociationsthat would lobby regulatoryboards.'Before such
policies are recommended,however, the balance of economic costs and
1 Lawrence Shephard, Licensing Restrictions and the Cost of Dental Care, 4 J. Law &
Econ. 185 (1978).
2 Milton Friedman & S. Kuznets, Income from Independent Professional Practice (1945).
3 Kenneth J. Arrow, Essays in the Theory of Risk-Bearing (1971).
4 Carl Shapiro, Investment, Moral Hazard and Occupational Licensing, 53 Rev. Econ.
Stud. 843 (1986).
5 Morris M. Kleiner, Are There Economic Rents for More Restrictive Occupational
Licensing Practices? in Proceedings of Industrial Relations Research Association 177
(1990).
6 B. Peter
Pashigian, Has Occupational Licensing Reduced Geographical Mobility and
Raised Earnings, in Occupational Licensure and Regulations 299 (S. Rottenberg ed. 1980);
and Morris M. Kleiner, R. Gay, & K. Greene, Barriers to Labor Migration: The Case of
Occupational Licensing, 21 Indus. Rel. 383 (1982).
7 Charles J. Wheelan, Politics or Public Interest? An Empirical Examination of Occupa-
tional Licensure (unpublished manuscript, Univ. Chicago, May 1999).
REGULATIONOF DENTISTRY 549
benefitsof the currentsystem of occupationallicensureneeds to be exam-

ined more thoroughly.
Our analysis of occupationalregulationemploys a new data set devel-
oped for this studythatmergesindividualhealthandsocioeconomiccharac-
teristics of Air Force recruits.We find little supportfor the position that
tougherstate regulationsfor dentistsare associatedwith improvedquality
of outcomes.Further,more generalstate-levelestimatesshow that tougher
regulationsdo not appearto influenceeithercomplaintsto dentallicensing
boardsor malpracticepremiums,butthey are associatedwith slowergrowth
in the numberof dentistsin the state, higherprices for the services exam-
ined, andhigherhourlyearningsfor dentists.These estimatesare consistent
with theoreticalmodels of occupationalregulationthat imply highercosts
to consumerswith few benefits.
In this study, we analyze the effect of tougheroccupationallicensing
standardson measureddentaloutcomesand on the prices of services. Ini-
tially, we review the empiricalliteratureon occupationallicensing, which
mainlyfocuses on the costs to consumersresultingfrom restrictionsto en-
try and to interstatemobility.Next, we presenta model linkingregulation
to the flow of new dentistsas well as to qualityand prices. In the section
thatfollows, we develop the conceptsand the uniquedataon Air Force re-
cruitdentalexams and socioeconomiccharacteristicsused to estimatethat
model.We then specify alternativemultivariatestatisticalmodels of the ef-
fect of more restrictivelicensing provisions:first, on the qualityof dental
outputs,andthenon the pricesof certaindentalservicesas well as earnings.
The conclusionssummarizeour key resultsandpresenttentativepolicy im-
plications.
A. Previous Empirical Results
It has been suggestedthat too much researcheffort has been directedat
the effects of barriersto entry into licensed occupationsand too little on
issues such as demandandthe potentialoutputeffects.8Unfortunately,stud-
ies examiningthe potentialbenefitshave been hamperedby the difficultyof
obtainingcovariatesor by otherdatalimitations.Therefore,very few have
investigatedthe benefitsthat differentforms of licensing may have on the
qualityof services.
Table 1 shows that,until ArleneHolen's work in 1978, majoreconomic
studiesof the regulationof dentistryignoredqualityissues.9Previousstud-
8 Lee Benham, The Demand for Occupational Licensure, in Rottenberg ed., supra note 6,
at 13.
9 Arlene Holen, The Economics of Dental Licensing (final report submitted to the U.S.
Department of Health and Human Services 1978).
TABLE 1
SUMMARY REVIEW OF STUDIES ON THE ECONOMIC COSTS AND BENEFITS OF STATE OCCUPATIONAL
Measuresof Costs
Study Data and Technique and Benefits
Alex Maurizi,Occupational Two pooled state cross sections Decreasedpass ratesin
Licensingand the PublicInter- (1940, 1950) of pass rates responseto excess
est, 82 J. Pol. Econ. 399 (1974) were regressedon estimatesof demandare assumedto
excess demandand prac- be againstthe public
a titionerincome interest
LawrenceShepard,Licensing Five-equationmodel estimated Price increasesresulting

Restrictionsand the Cost of with two-stageleast squares from lack of reciprocity
DentalCare,4 J. Law & Econ. employs state-leveldatafor measurecost
185 (1978) 1970 relatingthe price of den-
tal servicesto reciprocity
ArleneHolen, The Economicsof Severalmeasuresof dental Variationin decayedteeth
DentalLicensing(1978) health,includingthe examina- as a fractionof the sum
tion recordsof 477 naval of the decayed,missing,
recruitsfrom 41 statesin and filled teeth measures
1969, are exploredwith a qualitybenefits
series of OLS models
employingthe state dental
exam fail rate as a measureof
restrictiveness
SidneyL. Carroll& R. J. Gaston, Severalproxiesfor dentalquality Shortwaitingperiodsand a
OccupationalRestrictionsand includingself-describedprac- betteroral hygiene inde
the Qualityof Service tice busynessand waiting would indicatea possibl
Received,47 S. Econ. J. 959 times as well as the some of positive impactof restri
(1981) the same dentalhealthdata tiveness
used by the Holen study,
supra, are used in equations
thatfirstrelatepractitionerden-
sity to restrictivenessmea-
suredby a citizenship
requirementor reciprocityand
then densityto the quality
measure,employingstate-level
cross-sectiondata.The less
directqualitymeasureslook at
all 50 states for 1970; the den-
tal healthmeasureuses 29
U states with 1969 data
c BrianBoulier,An Empirical Two-stageleast-squaresesti- Net benefitmeasuredby
Examinationof Licensureand mates of constantelasticity changesin consumersu
LicensureReformon the Geo- supplyand demandfunctions plus and producerwelfa
graphicDistributionof Dentists, for dentalservices are devel- resultingfrom the inter-
in OccupationalLicensureand oped using 1967 state-level statereallocationof (a
Regulations(S. Rottenberged. data fixed total supplyof) de
1980) tists is estimatedto be
necessaryto equalizese
vice prices among state
ies implicitly held quality constantwhile concentratingattentionon esti-

mates of excessive prices or incomes resultingfrom greaterrestriction.In
partof her work,Holenemployed 1968 dataon the dentalconditionof 477
naval recruits,1'and,on the basis of one measureof quality(employingthe
numberof decayed,missing, and filled teeth) and the use of the state's li-
censing pass rate to measurerestrictiveness,she finds a positive effect of
restrictivenesson quality.
A comparisonof Holen's work with partof the analysisof dentistrypre-
sentedby Sidney Carrolland R. J. Gaston"illustratesthe difficultyof de-
veloping an adequatemodel of the costs andbenefitsof restrictiveness.Em-
ploying otherdatafromthe sameclinical studythatHolenused, Carrolland
Gastonuse an oralhygieneindex (relatingto the soft tissue surroundingthe
teeth ratherthan a measureof the conditionof the teeth) as the dependent
variableandthe presenceor absenceof licensingreciprocitybetweenstates
as the measureof restrictiveness.They find a resultessentiallythe opposite
of Holen's: no increasein the qualityof outcomes.
While boththe Holen andthe CarrollandGastonstudiesarecreativeand
valuable, neither directly measureseither dental health or restrictiveness
satisfactorily.Holen indexes dentalhealthby using a variantof a conven-
tional but approximatemeasureof the conditionof the teeth, while Carroll
and Gaston's oral hygiene index is much less appropriateas an outcome
measurebecause it estimates a conditionthat correlatesvery imperfectly
with overalldentalhealth.
Althoughsome measureof a state'spass ratemight arguablybe superior
to the reciprocitymeasureused by Carrolland Gastonas a single index of
restrictiveness,Holen employs only the raw contemporarypass rate of the
recruit's state of residence, which, among other problems,implicitly as-
sumes that the same percentagepass rate implies the same absolutelevel
of competenceacrossstates.Neitherstudyacknowledgesthe complexityof
modeling restrictiveness.For example, even if state restrictivenessat a
given time could be appropriately measured,therecould be a seriousmis-
match between contemporarystate restrictivenessand the restrictiveness
applyingto variouscohortsof dentistspracticingin that state. Moreover,
neitherstudy acknowledgesthat, given the propensityfor geographicmo-
bility in the United States,a substantialamountof the recruits'dentalcare
may have been receivedfar from the place listed as home.
In additionto importantlimitationsin measuringdental health and re-
0oR. J. Stepnick,H. J. Keene,& R. Bognore,DentalCaries,PeriodontalDisease, andOral

Hygiene Interrelationshipsin Naval Recruits(NavalDentalRes. Inst. 1975).
"
Sidney Carroll& R. J. Gaston,OccupationalRestrictionsand the Qualityof Service
Received:Some Evidence,47 S. Econ. J. 959 (1981).
REGULATION OF DENTISTRY 553
strictiveness,neitherstudyallows for manyotherkey variablesandthe rela-

tionships that could be conditioningthe interactionamong them. Among
otherproblems,these studiesdo not considergender,race, socioeconomic
status,or insurancecoverage.
Our investigationaims to advancethe analysis on all three fronts. We
employ a more comprehensivemeasureof dentalhealth.We develop alter-
nativemeasuresof restrictiveness,includingboth a "quality-adjusted"pass
rate and statutoryfactors, and we attemptto specify our relationshipsby
employingas many plausiblecontrolsfor economic and demographicfac-
tors as possible. This is accomplishedusing data especially gatheredfor
these purposes.
B. AnalyzingLicensureEffectson Demandon Outputs

The theoreticaleffect of entryreductionon the price of services is well
developed;the linkage between quality and demandis also importantbut
receives much less attentionin the literature.12Currenttheoryand evidence
provideinconclusiveresults aboutthe effects of occupationallicensing on
the improvementof service sector outputs.To arriveat conclusionscon-
cerning overall economic welfare, one must understandthe manner in
which the institutionalimpositionof licensureaffects supply and demand
in specific markets.This analysisaims at discoveringthe channelsthrough
which individuals'dentaloutcomesare affectedby licensingrestrictionson
the occupationprovidingthe serviceinputs.We can then developa measur-
able model to estimatewhetherbenefitsor losses accrueto the consumer
from licensing statutesand administrativeprocedures.Figure 1 shows the
expected process of the effect of occupationalregulationon dentalhealth
status.Along its upperbranch,the figureshows how dentalregulationoper-
ates throughstate-levelpass rates, more restrictivelicensing statutes,and
reciprocityagreementswith otherstatesto restrictthe licensingof new den-
tists. The empiricalresultsfor this relationshipshow that licensing boards
increaseor reducenew dentistsin responseto currentchangesin the mar-
ket, operatingmuch like a traditional"cobweb" cycle.13The consequence
of restrictingentryin any periodis to reducesupplyandincreasethe prices
of dentalservices.
The sameregulatoryfactorsnotedabove are shownto influencethe qual-
ity of dentalcare. Assumingthatlower qualitydentistsare removedas en-
12DennisW. Carlton& JeffreyM. Perloff,ModemIndustrialOrganization(2d ed. 1994).

13Alex Maurizi,OccupationalLicensingand the Public Interest,82 J. Pol. Interest399
(1974); Kleiner,supra note 5; and MorrisM. Kleinerand RobertT. Kudrle,Do Tougher
LicensingProvisionsLimit OccupationalEntry:The Case of Dentistry(WorkingPaperNo.
3984, Nat'l BureauEcon. Res. 1992).
PRICES
DENTAL REGULATION UNTREATED

(PASS RATES, RESTRICTIVE FLOW OF DENTISTS DETERIORATION
STATUTES, RECIPROCITY)
+
QUALITY
t
OTHER FACTORS
L.----- ..--.-------------------- -j
1.-Regulation's impacton untreateddentaldeterioration

FIGURE
try restrictionsare increased,as shown on the bottomportionof Figure 1,

the mean qualityof a dentalvisit (which we define as a representativeset
of services) is increasedsince the remainingdentistsenteringthe occupa-
tion are of higherquality.14With this presumedenhancementin quality,the
use of services would increaseas perceivedqualitygrew.'"In the absence
of any theoryor evidence to the contrary,we assumedthat the stringency
of professionallyadministeredqualitycontrolssuch as licensureis the best
proxy for qualityas recognizedby the consumer.This factoralone would
directly reduce untreateddeteriorationas shown in Figure 1. However,
higherdentalpricesalone wouldincreasethe overallextentof dentaldeteri-
oration.The net effect of regulationon dentaldeteriorationis thereforethe-
oreticallyunclear.The overalleffect of greaterregulationon the qualityof
services deliveredand on dentalhealthneeds to be decidedwith data and
analysis.
The basic relationshipsderived from Figure 1 would suggest that the
qualityof a dentalvisit would be negativelyrelatedto the pass rate,PR, in
a state, assumingtime and effort spent with each patientremainthe same.
14 Unfortunately,the qualityof a dentalvisit is an unobservablein our data set with the

standardassumptionsaboutthe errortermof this factor.We assumethat the qualityof the
visit increaseswith the qualityof the practitioner.
15 Hayne E. Leland,MinimumQualityStandardsin Marketswith AsymmetricInforma-
tion, in Rottenberged., supra note 6, at 265.
Eitherlower qualitycandidateswould be rejectedby a state or those indi-

vidualswould incuradditionaloccupation-specifictrainingin orderto pass
the exam. This relationshipis presentedin equation(1):
VQ = f(PR, X1), (1)
where visit quality (VQ) is negativelyrelatedto the pass rate for dentists
andX, is a set of othercovariates.
In contrast,an increasein the pass ratewould enhancethe access to den-
tal services. This would providegreateraccess as more dentistsare avail-
able in the state, which would reduce the money price of a visit and the
office waiting time to see a dentist as well as travel time. This would be
includedin the implicit or full price for a dentalvisit. This relationshipis
shown in equation(2):
FP = f(PR, X2), (2)
whereFP is the full price,whichincludestime costs; FP is influencednega-
tively by the pass rate,16andX2is a set of controlvariables.
Overall dental outputswould be a function of the quality of a dental
visit-which is an unobservablein our model-and the access to dental
care. Althoughotherswithina dentalestablishmentcan providedentalser-
vices, all servicesare underthe control,monitoring,anddirectionof a den-
tist. For example,in all statesdentalhygienistsmust work,by statute,with
the guidanceof a dentist.Even thoughwe examineonly the regulatoryre-
quirementsfor becominga dentist,we note thatrestrictivenessmeasuresfor
dentistsand hygienists are highly correlatedacross states. The Council of
StateGovernmentsmeasuresof these legal and administrative requirements
show a simple correlationof about .90. Therefore,in equation(3) overall
dentalhealthis a functionof both the full price and dentalcare quality:
DH = f(FP, VQ, X3), (3)
where DH is the dentalhealth of a personin a certainjurisdictionand X3
is a vectorof othercovariates.In sum, dentaldemanddependson threefac-
tors: perceivedquality,money price, and time price of representativeser-
vices and othercovariates.
Many studies of service demandhave attemptedto overcomethe prob-
lem of variabilityin serviceoutputby makingqualityadjustmentsbasedon
characteristicsof inputs.However, there is no assurancethat the services
actuallyreceivedby consumersare positively correlatedwith these proxy
16 Further, more dentists might be more effective lobbying for dental

coverage in medical
health plans in both the public and private sectors, thus reducing point-of-service money
prices.
measuresof inputproductivity,and the distinctionbetweenthe numberof

inputsemployedand the qualityof outputreceivedare quiteimportant.An
inferiordentist may requiremultiple attemptsto fill a tooth to the same
standardof qualitythatanotherdentistcan accomplishat once." Insteadof
measuringthe numberof separatevisits or fillings, supposewe examinethe
dental conditiona numberof years after the intervention.From this per-
spective, an individualtreatedby the inferiordentistand one by the more
skilled dentistmay be observedto have one filled tooth.Therefore,we can
infer that the outputof services made possible by the originalinvestments
has been identical,regardlessof inputactivities.'"
Appropriateresearchmeasuresof qualitycan be developedby consider-
ing the stock of dentalhealthstatus,HS. The depreciationrate,DR, which
lies betweenzero and one, is inverselyrelatedto the extentof personaland
professionalpreventiveinvestmentmade by the individualover t periods,
as well as the stock of untreatedpreviousdeterioration.We assumethat a
significantcomponentof preventivecare is service performedby profes-
sional agents.Anothercomponentis clearlyrelatedto the consumer'sper-
sonal dentalcare.
As dentalhealth statusdepreciates,correctionscan be performedto re-
pairdamage.Thus,the stock can be, in a sense, replacedat some rate,CR.
Then in equation(4),
HSt = (1 - DRt + CR,)HS,_I. (4)

At a given time a person's dental health can be representedby equa-
tion (5):
TD, = (1 - DR, + CR,)HSo. (5)

i=0
Thus we can define untreateddeterioration'9

as20
UD, = HSo- HS,. (6)
17 W. Oi, The Economicsof Public Safety,4 Bell J. Econ. 3 (1973).

18 To have comparableservice flows or rates, the individualsmust be the same age and
otherwisesimilaror adjustmentfor such differencesmustbe made.
19 The term CR is net intervention,and, because correctiveinterventionsoften need re-
placementor repair,the ratioof gross to net correctiveinterventionwill typicallygrow over
time.
20 This formulationdoes not embracesome orthodonticand otherproceduresotherthan
repairthatmightin rarecases makepossiblean improvementin the initialfunctioningdental
conditionafter a complete set of permanentteeth have developed.By focusing on dental
health,we also ignoreissues of cosmeticdentistry.
OF DENTISTRY
REGULATION 557
The deteriorationof dentalhealthstatuswill varyconsiderablyacrossin-

dividualsbecause of genetic factorsthat we cannotcontrolfor, as well as
for some uncontrolledenvironmentalreasons(thatis, diet or generalhealth
status).21
Let all else be held constant,and (1 - DR,) will be a strictlyincreasing
functionof the qualityand quantityof preventionin equation(7):
(1 - DRt) = f(Plt, P2t, P3t), (7)
whereP, = an index of personalpreventiveintervention;P2 = an index of
public prevention,the fluoridationof public water supplies;and P3 = an
index of professionalintervention,mainly cleaningand sealants.
In developingan empiricalconstruct,a measureof only one aspectof the
three relevantvariables,the fluoridationof the water supply in the areas
where an individualhas lived, is availableto us. The other two variables
are unobservablesin our model thatwe attemptto capturethroughthe em-
ploymentof proxies known to contributeto personalpreventivebehavior
and a proclivityto use preventiveservices. The dental care literaturesug-
gests thatboth unobservedpreventioninvestmentsare positively correlated
with family income andthe householdhead's educationlevel.22Overall,we
assumethatcontrollingfor variousattributessatisfiesthe usual assumptions
aboutthe errorterm.
Licensingrestrictivenesshas two majoreffects on practitioners.First,in-
dividualsconsideringenteringan occupationin a state may decide not to
when the pass rate is low.23 Statutoryprovisions,such as a waitingperiod
or a requirementto retakeof a state portionof a licensingexam if an indi-
vidualhas qualifiedin anotherstate,may furtherreducenew entrants.Such
restrictionsmay increasethe averagequality of the in-state dentists.Sec-
ond, for most dentists choosing a state in which to locate, initial failure
wouldresultin more studyandretakingthe exam, thuspresumablyenhanc-
ing occupation-specifichumancapital. In both of these cases the average
qualityof dentistsin the state would rise, but pricesmay also rise because
the supplyof dentistsand access to dentalservices would be reduced.
21 RobertT. Kudrle& LawrenceMeskin, Introduction to Reducingthe Cost of Dental

Care(R. T. Kudrle& L. Meskineds. 1983).
22 Id.
23 We estimatedthat the present-valuecost to dentists who fail the exam was approxi-
mately$54,000 in 1997 dollars.This estimatewas derivedby initiallyassumingthatthe indi-
vidualbecomes a licensedpractitionerby passingthe exam the next time it is given, which
is every 6-12 months,and the individualis employedas a dentalassistantin the interim.
Following SolomonW. Polachek,OccupationalSelf-Selection:A HumanCapitalApproach
to Sex Differencesin OccupationalStructure,63 Rev. Econ. & Stat.60 (1981), the estimate
assumesthe averagelag and includeslost earningsgrowthof 1 percentfor the next 5 years
due to lost experienceand nominalearningsgrowthdifferences.
In additionto its obvious significancefor CR in equations(4) and (5)

licensing is assumedto have a majoreffect on P3 in equation(7) because
preventiveservices must be deliveredundera dentist's supervisionin all
states,and we assumethat views aboutthe qualityof dentistryratherthan
those that might be formed about ancillaryservices drive consumerbe-
havior.
C. Conceptsand Data
Two majordifficultieshave plaguedattemptsto model consumerbenefits
in previousstudiesof occupationalregulation.First,researcherslackeddata
detailingstatutesandpass ratesas measuresof staterestrictiveness.Second,
they lacked comparativedataon the resultsof servicesprovided.Our data
sets focus on both of these issues as well as on essentialcontrols,acknowl-
edged by previousresearchers.
We collected detaileddentallegal informationfrom each state's statutes
for the periodfrom 1960 to 1994, updatingit with similardatagatheredby
the Council of State Governments.24 We also obtainedpass rate data from
the AmericanDental Association;priorresearchhas shown that the pass
rate is the key measureof restrictiveness.25
Previousstudies have employedpass rates with incompleteattentionto
the possible variationin their meaningacross states. For example, a high
pass ratein Californiacould be controllingdentalpracticeat a higherlevel
of qualitythana low pass ratein NorthDakotaif the averagequalityof the
applicantis sufficientlyhigher in California.We have attemptedto deal
with this problemby includinga commonqualityfactorin our estimating
equations.All incomingdentalstudentshave takennationalentranceexam-
inations,and we includethe mean incomingscore on that examinationfor
the most appropriatedental school for each state. In general, one dental
school dominatesthe productionof dentistsfor a given state.26 This variable
is used to controlfor the premarketeducationalabilitiesof the stock of den-
tists.27
Developing the most appropriatenew measuresof the dependentand
24 Councilof State Governments,OccupationalLicensing(1987, 1994). This sourcealso

catalogednew informationon the licensureof dentalhygienistsand dentalassistants.
25 Maurizi,supranote 13; M. Getz, J. Siegfried,& TerryCalvani,Competition
at the Bar:
The Correlationbetweenthe BarExaminationPass RateandProfitabilityof Practice,67 Va.
L. Rev. 863 (1981); Kleiner,Gay, & Greene,supranote 6; Kleiner& Kudrle,supranote 13.
26 For those statesthathave morethanone dentalschool, the scores were weightedby the
relativesize of the cohorts.
27 DerrickNeal & W. R. Johnson,The Role of Pre-market Factorsin Black-WhiteWage
Differences,104 J. Pol. Econ. 869 (1996).
some independentvariablesinvolvedseveralsteps.As stated,we assembled

measuresfor each significantdimensionof restrictiveness.Time-seriesdata
are importantfor many measuresbecause the stock of practitionersat any
time is composed of a large numberof separate"vintages" with varying
qualifications.Forthe periodthatmost of our samplewas growingup, how-
ever, from the beginningof 1960 to the end of the period in 1987, there
was a rank-ordercorrelationof .60 for the states maintainingtheir either
high or low level of restrictivenessas measuredby pass ratesand statutory
measuresthrougha summatedratingscale.28
We were unable to find any agency in the United States that routinely
collects data on varyingdentalconditionsalong with appropriatecontrols.
Therefore,we employeda uniquesourceof medicalanddemographicinfor-
mationfrom a sampleof new enlistees into the U.S. Air Force.We gained
the cooperationof the commanderof Lowry Air Force Base near Denver,
Colorado,historicallya majorbase for new recruits.We designedand pro-
vided a questionnairethat Air Force personneladministeredas partof the
initialdentalexaminationrequiredof everyone.Althoughpersonswere not
obliged to cooperate,no one declined to fill out the questionnaire.Some
forms were not fully completed,but only about5 percentof them were un-
usablefor thatreason.Some self-reportingerrorsarisebecauseof the retro-
spective natureof the questions,but the recruitswere told that the results
were to be used anonymously.We were able to obtain access for only a
limitedperiodin early 1992 becausethe base was closing.
Data were gatheredon the age, gender, and race of the recruit,on the
educationof the head of the household,and the total income of the house-
hold in whichthe recruitgrew up. Parents'educationandincome (corrected
by number of members) were especially importantbecause they were
known from previousresearchto affect the demandfor dental services.29
Fluoridereducesthe incidenceof cavities,the single most importantdental
28 Both David Bartholomew, The StatisticalApproachto Social Measurement(1996), and

AndrewWang,EconomicReformandStateEnterpriseProductivityin China:An Application
of RobustEstimationand LatentVariableMeasurementMethods(Ph.D. dissertation,Har-
vardUniv., Dept. Econ. 1997), use summatedratingscales based on unweightedvalues ag-
gregatedto form a single variable.After 1987 dentalboardscores were reportedby region
ratherthanstate.Regionalresultscheckedwith a shift-shareallocationdid not reveala quali-
tativechangein the pass ratesto 1991. Morerecently,as reportedin LawrenceMeskin,Time
for a DentalBoardCheckup,125 J. Am. DentalAssoc. 1418 (1994), the AmericanAssocia-
tion of Dental Schools adoptedas a goal the eliminationof all state and regionallicensing
examinationsand theirreplacementwith examinationsin dentalschool or a nationalexami-
nation.
29 Given the averageage of 21, the head of householdwas self-reportedfor each enlistee
to be his father,mother,or legal guardian.Also see RobertT. Kudrle,Dental Care,in Na-
tional HealthInsurance:ConflictingGoals and Policy Choices (J. Feder,J. Holohan,& T.
R. Marmoreds. 1980); Kudrle& Meskin,supranote 21.
disease in young people. Because the public water supply can be a major
source of fluoride,we obtainedresidencelocation and durationfrom birth
until entryinto the Air Force from all personsin the sample.Place of resi-
dence was also used to identify the restrictivenessof dentalregulationat
the state level.3"Further,we asked new Air Force recruitsif their family
was coveredby dentalinsuranceandhow manytimes they went to the den-
tist in the previous2 years.
Indices of dentaloutcomeswere developedthat allowed for the assess-
mentof previousandcurrentdentaldeterioration(TD), the amountof repair
alreadyperformedon an individual(TC), and the amountof repairneeded
to bring the individualto completecorrection(UD). A smalleramountof
untreateddisease implies a higherdentalhealthstatus.A licensed research
dentist worked with us to develop the coding and examined the dental
formsfor each of the individuals.These personshad been examinedby Air
Forcedentistswho ensuredthatdentalhealthstatuswas appropriately spec-
ified. The informationobtainedfromthe dentalexaminationsresultedin the
coding of dentalcorrections(CR) and any form of untreatedtooth-related
deterioration(UD). Periodontalinformationis not explicitly used in the
study.3"
Table2 presentsthe meansand standarddeviationsfor the individualsin
our samplefor licensing and state characteristics.Geographicspreadis di-
verse, and the education(12.7 years) and family income ($27,621) of re-
cruitsclosely matchedthe countryas a whole (12.6 years and $29,458) for
the early 1990s fromCurrentPopulationSurveyestimates.Oursamplecon-
tains over 23 percentof nonwhiteAmericans,but only 17 percentof the
individualsin our data set are women.
Otheranalysishas foundthatthe socioeconomicbackgroundsof military
recruits,includingAir Forcerecruits,closely matchthe backgroundof aver-
age Americans.32 In particular,this samplecontainsa sufficientlylargesam-
ple of individualsfrom low-incomehouseholds(approximately22 percent
below the U.S. designatedpovertylevel) to allow us to examinethe effect
30 Since the childrenof militarypersonnelenlist to greaterdegreethanthe generalpopula-
tion, we checkedthis issue in our sample.We foundthatonly 27 individualsmay have spent

all or partof theirchildhoodin militaryhouseholdsand thereforewould have receivedcare
isolatedfrom local dentalmarkets.
31 Many of the examinationslacked this information, and thereis a paucityof precision
in this measuredue to the absenceof periodontalprobingor the use of any of the standard
periodontalindices by the Air Force on routinedentalexaminations.Periodontalcondition
plays an importantpartin the dental health statusof the generalpopulation,but it is less
useful in a sampleof very young adultssince periodontaldisease is not a majorproblemin
this age group.
32 David Boesel, The DOD Survey of RecruitSocioeconomicBackgrounds(U.S. Def.
ManpowerData Center1989).
TABLE 2
MEANS AND STANDARD DEVIATIONS
Variable Mean SD
Quality measures (N = 464):

Total dental depreciation ($) 669 768
Dollar value of untreated correction ($) 227 328
Dollar value of previous treatment ($) 442 668
Price of filling ($) 44.84 7.17
Price of cleaning ($) 76.52 15.98
Individual characteristics (N = 464):
% male 82.7
% nonwhite 24.8
Years of education 12.7 1.99
Age 21.60 2.46
Household age 2.62 1.78
Family income ($) 27,842 19,398
% with dental insurance coverage 57.9 49.5
Average dental visits (last 2 years) 2.63 2.55
State characteristics (N = 50):
Fluoridation rate (%) 53.25 41.21
Average malpractice insurance fees ($)a 1,912 761
Average quality score of dentists in state dental school 4.68 .39
Weighted pass rate 85.8 6.98
Endorsement statute (%)b 58
Citizenship requirement (%)c 22
Public use sample data (1990 census; N = 3,361 dentists)
Hourly income ($) 41.02 43.02
Annual income ($) 81,948 58,470
% married 83
% U.S. citizens 92
% nonminority 91
% female 13
Age 43 10
Hours worked weekly 41 10
a
Fees are shownfor a dentistwith 10 years of experience.
b Applicantsreceive a license if they meet entryrequirementsin force at the time of initiallicensure.
c The individualmustbe a citizen in orderto be licensed in the state.
of varyinglicensingprocedureson the qualityof servicesreceivedfor indi-

vidualswho may be most adverselyaffectedby tougherregulation.Conse-
quently,using the Air Force base sampleshouldenhancethe generalizabil-
ity of our resultsto othersimilarcohorts.
We convertedthe UD value of untreateddeteriorationinto a monetary
measureas a methodof evaluatingthe cost of bringingan individualto an
optimaldentalcondition.33 We used the nationalaveragefees for corrective
33 A. G. Christen et al., United States Air Force Survey of Dental Needs, 98 J. Am. Dental
Assoc. 726 (1979).
562 THEJOURNALOF LAWAND ECONOMICS
treatmentby generalpractitionersobtainedfromthe 1992 surveyfromDen-

tal Economicsas the prices to bring each person in our sampleup to the
best possible level.34This surveyalso providesstate-by-stateaverageprices
for most majordentalproceduresthat we use for our state-levelanalysis.35
The meansof these values as well as those for most of the othervariables
are also presentedin Table 2.
Each of our 464 individualobservationscontainsinformationon house-
hold variablesand state characteristicsweighted by the time the person
spent in each of the 50 states. Since there is no clear consensusfrom the
dental establishmentregardingwhich stage of dentaldevelopmenthas the
greatesteffect on dental outcomes, our analysis assigns equal weight to
each age period.36By comparison,this sampleis similarin size to the 477
observationsof navalenlisteesfrom41 statesused by Holen andby Carroll
and Gaston.37
We asked all enlistees where and how long they lived at each location,
giving state characteristicsproportionalweights correspondingto the time
Measuresof heavy, medium,and light regulatoryli-
spent in that state."38
censing statutesand qualifyingexams were developedby noting that the
averagepass ratefor the UnitedStateswas approximately85 percent.Lev-
els below 80 percentwith eitherno reciprocityor no endorsementprovision
for out-of-statedentistswere designatedto be heavily regulated.Medium
34Dental Economics(unpublishedmanuscript,tables on prices of dental proceduresby

state 1993).
35 We also estimatedthe moreconventionalsummatedratingscale of dentalconditionde-
veloped by dentalresearchersto examinethe robustnessof our results.As explainedin H.
Kleinet al., Studieson DentalCaries:DentalStatusandDentalNeeds of ElementarySchool
Children,53 Pub. HealthReporter751 (1938), and J. W. Knutsonet al., Dental Needs of
Grade-SchoolChildrenin Hagerstown,Maryland,27 J. Am. Dental Assoc. 579 (1940), the
most widely used measureof overalldentalhealthis the DMF (thatis, the value of decayed,
missing, and filled teeth).The DMF is consideredto have a range of 0-128 and is a sum-
matedratingscale for our purposes.The meanDMF for our samplewas 13.5, with a range
of 0-35. While the mean correspondsto a ratherlow overallnumberof cavities, the range
suggests a variedexperience.The mean dollar amountof total previouscorrectionis $442
(SD = 668), while the averagedollaramountto bringindividualsto a disease-freestate is
$227 (SD = 328). All 50 states were representedin this analysis.Our resultswere similar
using both physicaland value metrics.
36
Accordingto the Bureauof the CensusVital HealthStatisticsof the UnitedStates,Den-
tal Statistics10 (1988), only one-thirdof personsunderage 4 use dentalservices.We, there-
fore, estimatedourmodelassumingno dentalcarefor personsof this age. Additionalanalysis
showedthatthis assumptionhad no qualitativeeffect on our basic results.
37 Holen, supranote 9; Carroll& Gaston,supranote 11.
38 In orderto estimatemodels that are consistentwith those presentedin the analysisin
Holen,supranote 9, we also estimatethe models allocatingeach individualto a state,based
on the last statethe personlived in priorto enlistmentin the Air Force.The resultsare con-
sistentwith the ones shown in Table4.
regulationswerethose stateswith pass ratesbetween80 percentand90 per-

cent and a provision for reciprocityor endorsement.Light regulationin-
cludedthose stateswith pass rates above 90 percentand eithera provision
for reciprocityor endorsement.39
One of the majoradvantagesof having a data set like the one we have
gatheredis the abilityto reduceunobservedheterogeneity.Since the group
thatformedthe basis of our measuresof dentalcarequalityhas similarages
andinterests,and somewhatsimilarabilities,the unobservablevariationrel-
ative to a randomlyselectedgroupingof ages, interests,andabilitiesshould
be greatlyreduced.An analysisof the generalpopulationwould likely suf-
fer from a wider variationin such characteristics,as well as includingper-
sons with failing generalhealth,which would be more difficultto control
for using standardstatisticalapproaches.Without such heterogeneityour
analysisof differencesin untreateddentaloutcomesshouldmore likely be
explainedby economic, environmental,and policy variablesabout which
we have dataratherthanlargedifferencesin attributesthatwe cannotmea-
sure or observe.Of course,the use of such a select groupfor our analysis
reducesour abilityto generalizeto the U.S. population.To partiallycorrect
for this potentialshortcomingand to comparewith the resultsfrom our se-
lected sample,we use other state and nationaldatato examinequalityand
price effects of varyingrestrictiveness.
D. Estimating a Model of Dental Health Based on Individual Demand

In orderto begin an evaluationof statesin termof costs andbenefits,we
firstratedeach state using the averagevalue of our index of dentalhealth
for the sample of Air Force recruitsfor that state. The highest and lowest
five statesin each categoryare presentedin Table 3, and the dentalrestric-
tiveness index of the state was ratedhigh, medium,or low. In panel A we
rank the states with the best average dental condition.The states with a
middlecategoryof tough licensing,like Wisconsinand RhodeIsland,have
the highest qualityrankingsusing this scale. In panel B we rankthe five
statesthat have the worst dentalcondition.We find that Idahoand Alaska
have the highestvalue of untreateddeterioration.Hawaiiis amongthe more
restrictivestates,yet has high levels of deterioration.
This orderingdoes not
show a clear relationshipof regulationto dental outcomes.These results,
of course,do not take into accountothercovariatesthat may influenceun-
39 Those states that had lower pass rates but had reciprocity or endorsement were moved
to the medium level of restrictiveness. Five states changed restrictiveness categories using
this convention.
TABLE 3
FIVE HIGHEST AND LOWEST RANKED STATES USING THE DENTAL QUALITY
INDEX AND INFORMATIONFROMAIR FORCE ENLISTEES
A. STATES WITH HIGHEST DENTAL QUALITY
Lowest WeightedTotalDeterioration Lowest WeightedUntreatedDeterioration

State State
Restrictiveness Restrictiveness
Rank State Index Rank State Index
1 RhodeIsland Medium 1 RhodeIsland Medium
2 Wisconsin Medium 1 Wisconsin Medium
3 Utah Medium 1 Vermont Medium
4 Iowa Medium 1 Nebraska Medium
5 Missouri Medium 5 Utah Medium
B. STATES WITH LOWEST DENTAL QUALITY
HighestWeightedTotal Deterioration HighestWeightedUntreatedDeterioration

State State
Restrictiveness Restrictiveness
Rank State Index Rank State Index
1 Hawaii High 1 Idaho Medium
2 Connecticut Medium 1 Alaska Low
3 Alaska Low 1 Minnesota Medium
4 Idaho Medium 1 Kentucky Low
5 Arizona Medium 5 Wyoming Medium
treateddentaldeterioration.We now turnto multivariateanalysisthatcon-

trols for these factors.
We specify the modelbelow to be consistentwith ourdemandmodel and
with Figure 1, which outlinesregulation'seffect on consumerwelfare.We
specify the following model of individualdental health based on the de-
mandfor dentalservices:
TDi = X,&• + Ri• + Ei; (8)
TC, = Xt2y + Rirj + E. (9)
In equation(8), TD, is the cumulativedepreciationof the individual'sden-
tal conditiondrawnfrom clinical examinationof Air Forcerecruitsand ag-
gregatedby the estimatedamountof past expenditureas well as the esti-
mated expenditureneeded to bring the teeth of each individualto fully
repairedcondition.In equation(9), TC is the total estimatedvalue of cor-
rective services actuallyobtainedby individualI. The termXj,is a vector
of personalattributesof the Air Force recruitsthat include economic and
demographiccharacteristicsof the person.The terms Ri are the measures
OF DENTISTRY
REGULATION 565
of state regulationincludinglicensing provisionsas well as a control for

the presence of flouridatedpublic water supply in the area of residence
weighted by the length of time the person was in the area.40The term Ri
includesthe prices of representativepreventiveand restorativeprocedures.
The terms 3, 8, y, and 11are unknownparametervectors,and e is an inde-
pendentlyand identicallydistributed(i.i.d.) errorterm.
The independentvariablesin equation(8) includeones thatwe posit de-
terminepersonal,public health, and professionalcontributionsto preven-
tion.41It shouldbe stressedthatthe restrictivenessvariablein this equation
is for dentistsonly, as is the case in equation(9).
An estimateof (8) using a Tobit specificationto accountfor individuals
who had no dentalproblems,about 10 percentof our sample, shows, not
surprisingly,that unobservablepersonaland genetic characteristicsdomi-
nate overalldentaldisease.Ourestimationof equation(9) findstotal deteri-
orationto be a significantdeterminantof total correction.42 This equation
suffers from simultaneitybias because of the inclusion of total deteriora-
tion. Since we were unableto develop a suitableinstrumentfor total depre-
ciation, we reportOLS estimatesin AppendixTable Al, and turn to re-
duced-formestimates.
Our study concerns the effect of varying regulationon dental health
throughboth prices and servicesrendered;attentionshouldthereforefocus
on reduced-formestimates.In addition,the OLS estimatesare quiteconsis-
tent with the reduced-formresults.
Because there is likely to be a substitutionbetweenpreventiveand cor-
rectivecare, the estimatesof untreateddeteriorationdividedby total deteri-
orationin reducedform shouldprovideadditionalinsightsinto the relation-
ship between more restrictive licensing practices and the measures of
enhanceddentaloutcomes.In a reduced-formequationbased on equations
40 Fluoridation policies are frequentlydeterminedby substatejurisdictions.Since we had

informationon the city or countyand durationof stay for all of the recruits,we constructed
an index for each personin the sample.In otheraggregateestimateswherewe neededstate
fluoridationaverages,we constructedanotherindexweightedby the shareof a state'spopula-
tion exposed to public fluoridation.
41 Only professionalpreventiveservices have money price as a (nontrivial)component.
The principalpublic healthmeasure,fluoridation,is a local public good, while flossing and
brushingoverwhelminginvolve a time price. All of the evidence suggest that, despite the
highershadowprice of personalpreventionfor personswith higherincomes,preventivebe-
haviorincreaseswith income. This resultconformswith the hypothesisin Victor R. Fuchs,
Time Preferenceand Health:An ExploratoryStudyin EconomicAspectsof Health93 (Vic-
tor R. Fuchs ed. 1982), thatthe rateof time preferenceis a powerfuldeterminantof health-
enhancingbehavior.
42 In addition,our estimationof equation(9) finds educationand insurancecoverageto be
significantdeterminantsof total correction.These resultsare shown in AppendixTable Al.

(8) and (9) we can estimateUD/TD (untreateddentaldepreciationdivided

by total depreciation)as follows:43
= Xt3% +
Rii + Ei, (10)
UDi/TDi
wherewe have the reduced-formimpactmultipliercoefficients.In this case
the Xi is againa vectorof characteristicsof the Air Forcerecruits,Ri is the
weighted state- and area-specificcharacteristicsof the licensing variables,
X andf1 are unknownparametervectors,and E, is the errorterm.'
In our sample68 percenthad some uncorrecteddentaldeteriorationand
90 percenthad some measurabledeteriorationduringtheir lifetime. Given
the numberof zero observationsin our data set resultingfrom eitherzero
deteriorationor as a consequenceof completecorrection,the Tobit specifi-
cationis an appropriatefunctionalform.45In Table4 we presentTobitesti-
matesof the effect of licensingpass ratesand statuteson the dollarvalue of
untreateddentaldisease,andtheirmarginaleffects.46To maintainas largea
sampleas possible, when our questionnairelackedinformationon a covari-
ate, we substitutedthe meansfor missing values and addeda dummyvari-
able thattook the value one when the mean was employedand zero other-
wise.47
Columns1-4 of Table4 show resultsof estimatesthatincludeonly mea-
sures of restrictivenessas well as householdand individualdemographic
characteristicsas determinantsof untreateddeterioration.In columns 5-8
we includea numberof additionalcontrols.Coefficientestimatesand mar-
43 In orderto check for functionalform of our specifications,we also estimatedtotal un-

treateddentaldepreciationwith total depreciationas an independentvariablealong with
Xij
Rijmeasuresand foundno qualitativechangesin our basic results.
4 We do not include the numberof visits to the dentistduringthe last 2 years since it
would be potentiallyendogenouswith untreateddentaloutcomes.We also used the number
of dentalvisits as an instrumentand found no statisticaleffect. However,we did estimate
the modelwith this variableto controlfor access to dentalservicesandto be consistentwith
otherspecifications,such as those developedby Holen, supranote 9, in her initialexamina-
tion of this issue, and foundno qualitativedifferencesfrom those presentedin our Table4.
45 We also estimatedthe equationspresentedin Table4 with 308 observations correspond-
ing to all personswith nonzerocorrectionand found results consistentwith the estimates
presented.In addition,we estimatedour reduced-formTobit with 416 observationscorre-
spondingto all personswho had nonzerodeteriorationduringtheir lifetime and found no
qualitativedifferencesrelativeto those shownin Table4.
46 As HelenaChmuraKraemer& Sue Thiemann,How Many Subjects?StatisticalPower
Analysis (1987), demonstrates,given the sample size of 464, the power of the test for our
model implies a 70 percentchanceof detectinga significantresultat a .05 confidencelevel
if the real effect size is .1.
47 Estimatesusing only those observationsfor which we had completedataon the covari-
ates producedno qualitativedifferencesin the results.These estimatesare availablefromthe
authors;see RoderickLittle & D. Rubin,StatisticalAnalysiswith Missing Data (1987).
TABLE4
REDUCED-FORMTOBIT ESTIMATESAND THEIR MARGINAL EFFECTSOF THE IMPACTOF S
REGULATIONSON UNTREATED DENTAL DETERIORATION(N = 464)
DEPENDENT VARIABLE: DOLLAR VALUE OF UNTREATED DETE
Marginal Marginal
Effects Effects
INDEPENDENT
VARIABLE (1) (2) (3) (4) (5)
High regulation ... ... -.065 -.045
(.073)
Mediumregulation ... ... -.116* -.081 -
(.056)
Restrictivenessof statute .008 .006 ... ... .010*
(.005) (.005)
Pass rate .004 .003 ... ... .002
(.003) (.005)
Incomeper family member -.003 -.002 -.003 -.002 .001
(.002) (.002) (.002)
Education -.023* -.016 - .023* -.016 -.028*
(.012) (.012) (.012)
Insurancecoverage ... ... ... ... -.259*
(.055)
Academic ability of dentists in the state ... ... ... ... .016
(.056)
Fluoridation .. . ... ... .0003
. (.001)
Constant .232 .673* .856
(.353) (.163) (.739)
Log likelihood - 348.58 -347.51 -327.19
Likelihoodratiotest for joint signifi-
cance of restrictivenessvariables 1.82 3.96 1.59
Meanand standarddeviationof the .35
dependentvariable (.36)
NOTE.-Estimated with controls for gender, race, age, childhood in military, and missing values. Standard errors in par
biases.
*
Significant at the .05 level.
ginal effects includestandarderrorscorrectedfor groupeddata.48Pass rates

in all specificationsare foundto be statisticallyinsignificant.We also show
the effect of the categoricalvariablesof high and mediumrestrictiveness
relativeto a regime of less tough regulation.These specificationsfind that
only mediumregulationis significantand negativeon untreateddeteriora-
tion in column 3 but is not significantin column 7 when additionalvari-
ables are added that control for demand-sidefactors. We also used a
maximum-likelihoodtest for the joint significanceof all the licensing-
relatedvariablesthat includethe pass rate and the statutoryvariables.The
resultspresentedat the bottomof Table4 show thatthese variablestogether
are also not significant.49The only consistentlysignificantvariablesin our
models were dentalhealthinsuranceand the educationlevel of the head of
the household.The insuranceresults are consistent with outcomes from
healthinsuranceexperiments.50
As an additionalsensitivitytest, we droppedthe top 5 percentof the indi-
vidualswith highestuntreateddeteriorationfromour sample.AppendixTa-
ble A3 presentsthese estimates,and they show no substantivechange in
the basic result.An additionaltest dividedthe datainto threecategoriesby
income of the head of the household;it showed no effect of regulationon
dentaloutcomes.Therewere no greatereffects of regulationfor higheror
lower income groups,suggestingthat regulationdoes not serve to provide
greaterservice qualityfor low-incomegroups.51
Sensitivitytests also includeda subsampleof those personswho did not
move and thereforehad no changein theirregulatoryregime;this included
363 individuals.The estimatesagain showed no statisticallysignificantef-
fect of any licensing variables,but the effects of dental insuranceagain
were statisticallysignificant.We also interactedthe pass ratewith the mean
entranceexam scoresfor the statedentalschools, and this variablewas not
significantin any of the specificationspresentedin Table4. Additionaltests
of the robustnessof the estimatescontrollingfor unobservedheterogeneity
48 Additionalspecificationsthatincludedcontrolsfor the interaction

of the licensingvari-
ables and income showed no substantialchangesin the results.We also usedjust the sum-
matedratingscale withoutdollarvaluefor the procedureandfoundno effectsof the licensing
variables.See also BrentR. Moulton,RandomGroupEffectsandthe Precisionof Regression
Estimates,32 J. Econometrics385 (1986).
49These estimatesused nationalpricesconstructthe dependentvariables.In AppendixTa-
ble A2 we use state-by-stateprices to constructthe same variables.The resultsare similar
to those in Table 4. Addingprice as an independentvariableshowed no majorchangesfor
our measuresof regulation.
50 JosephP. Newhouse,Free for All? Lessons from the RAND HealthInsurance Experi-
ment (1993).
51These estimatesare availablefrom the authors.
by economic status showed no large or significanteffects of occupational

licensureon untreateddeterioration.52
As additionalchecks, we use two othermore aggregatemeasuresof den-
tal service qualityin Table 5. First,we use the ratioof the complaintsfiled
againstdentistsat each of the state licensingboardsto the numberof den-
tists in the stateas the dependentvariable.Second,we use the averagemal-
practiceinsuranceratesin a state for a dentistwith 10 years experienceas
a dependentvariable.Independentvariablesincludestateeconomicand de-
mographicvariablessuch as averageeducationin the state,percentminor-
ity, age and age2,per capita income, fluoridation,and the test scores for
new dentalstudentsin the state,as well as measuresfor the levels of restric-
tiveness of state licensing. The coefficientsfor none of the licensing vari-
ables are statisticallysignificantin Table 5.
In Table 6 we addressthe issue raisedin the theoreticalmodel in Figure
1 regardingthe role of regulationon the supplyof dentists.In this specifi-
cation the dependentvariableis the log change in the numberof dentists
per capitafrom 1980 to 1990, the principalperiod for the analysis of the
sample of Air Force recruits.Consistentwith stock-adjustment or cobweb
models of the labormarket,53 the independentvariablesare the logarithmof
per capita income in the state, the logarithmof the dentistsper capita in
1980, andmeasuresof regulationthatincludethe statepass ratefor dentists
and indices of the relativelevels of overall dental regulation.These esti-
mates are consistentin showingthathigherlevels of regulationare associ-
ated with smallerchanges in dentistsper capita.The levels of regulation
variables,consistentwith Figure 1, show that greaterregulationis associ-
ated with fewer dentists.The pass rate variablein column 1 is statistically
significantand positive, suggesting that higher pass rates are associated
with greaterchangesin dentistsper capitain the state. Using the estimates
of the long-runeffect multiplierfrom the model, the estimatedeffect of a
52 In a mannersimilarto RichardB. Freeman& MorrisM. Kleiner,The Impactof New

Unionizationon Wages and WorkingConditions,8 J. LaborEcon. S8 (1990), we grouped
all those individualsfromfamilieswho had (a) incomesin the upperone-thirdof ourincome
and educationdistributionand (b) dentalinsurance,and then createdpairs of observations.
These individualsare assumedto have commonsocioeconomiccharacteristics. We then di-
vided individualswithinthese categoriesinto groupsfrom statesthathad the most and least
rigorouslicensing standards,creatinga set of pairedobservationsby individualswho were
the most similarbasedon theirincomes.We thenexaminedtheiruntreateddeteriorationval-
ues. Again, we could find no statisticallysignificantdifferencesin untreateddeterioration
betweenthose groupsin high- and low-regulatedstates.However,for individualswho were
in the lowest income groupsthe mean value of untreateddeteriorationwas 2 percentlower
relativeto those personswho had lived in states with more regulation.This result was not
statisticallysignificantusing a difference-in-means
test.
53RichardB. Freeman,Legal Cobwebs: The ChangingMarketfor Lawyers, 57 Rev.
Econ. & Stat. 171 (1975).
TABLE 5
ORDINARY LEAST SQUARES ESTIMATESOF THE IMPACTOF STATE LICENSING REGULATIONS

ON STATE COMPLAINTRATES AND MALPRACTICEINSURANCE PREMIUMS(N = 50)
DEPENDENT VARIABLE
Log Insurance
Complaints/Dentists Premiums
VARIABLE
INDEPENDENT (1) (2) (3) (4)
Restrictionindex of statute .02 --. .0004
(.009) (.025)
Pass rate .002 -.007
(.004) (.010)
High regulation ... -.04 .-. .07
(.08) (.21)
Mediumregulation ... -.11 -.11
(.06) ... (.16)
Stateper capitaincome -.017 -.0007 .13* .14*
(.014) (.014) (.04) (.04)
Academicability .02 .018 -.10 -.04
(.05) (.046) (.14) (.13)
Fluoridation .0004 .0001 -.003 -.004
(.0008) (.0008) (.002) (.002)
Constant 7.64 11.55 10.74 18.65
(13.64) (13.32) (38.03) (36.81)
R2 .13 .13 .28 .30
F-test for joint significanceof
the restrictivenessvariables 2.07 2.22 .26 .77
Mean and standarddeviationof .29 $1,912
the dependentvariable (.13) (769)
NOTE.-Estimated with controls for state-level measures of education, percent minority, average age
errorsarein parentheses.
in thestate,andage2.Standard
of residence
* Significantat the.05 level.
10 percentincreasein the pass rate is to increasedentistsper capitaby 2

percent.
Overall,our results show that licensing does not improvedentalhealth
outcomes as measuredby our sample of dental recruits.Moreover,treat-
ment quality does not appearto improvesignificantlyon the basis of the
reducedcost of malpracticeinsuranceor a lower complaintrateagainstden-
tists, whereregulationis more stringent.Finally,stricterregulationsare as-
sociatedwith reduceddentistsper capitain a state.
E. Effect of Tougher Regulations on the Prices of

Dental Care and Earnings of Practitioners
One of the key issues in occupationallicensing has been the role of
tougherregulationson dental service prices. We estimateprice equations
OFDENTISTRY
REGULATION 571
TABLE 6
IMPACTOF OCCUPATIONALREGULATION ON THE CHANGE IN THE
NUMBER OF DENTISTS PER CAPITA BY STATE, 1980-90 (N = 50)
DEPENDENT
VARIABLE:
LOG
CHANGE IN
DENTISTS PER CAPITA
INDEPENDENT VARIABLE (1) (2)
Pass rate .003*

(.001)
High regulation -.04
(.04)
Medium regulation -.04
(.03)
Log of state in income per capita in 1990 .16 .11
(.10) (.10)
Log of dentists per capita in 1980 -.17* -.16*
(.07) (.08)
Constant -1.09 -.38
(.90) (.85)
R2 .23 .17
NOTE.-Estimatedusing data from the 1980 and 1990 U.S. StatisticalAbstracts.

Standarderrorsare in parentheses.
* Significantat the .05 level.
using both stateandour individual-by-state

observations.Ourreduced-form
price equationassumesthat prices of the most common dentalservices in
a state are a functionof both supplyanddemandfactorsin the state.In our
model, regulationcan increaseprices both by enhanceddemandthrough
bettervisits andby supplyrestrictionthroughthe controlof new dentistsor
migrants.In eithercase, prices are assumedto increase.The basic model is
specifiedas follows:
Pi = Xj + Rij + Ei, (11)
where P is the logarithmof the price for dental services in statej, Xj is a
vectorof state supplyand demandcharacteristicsthatinfluencethe price of
dentalservicesin statej, includingincome in the state,the averageage and
educationof the population,percentminority,percentageof state with flu-
oridation,and the qualityof dentists;Rj are measuresof state licensingef-
fect measuredas licensingrequirementsand a categoryof stateswith espe-
cially heavy levels of regulation;co and gt are unknownparametervectors;
and E,is an i.i.d. errorterm.
The OLS regressionestimatesof the effect of supplyanddemandfactors
as well as licensingregulationson the prices of filling a cavity andprovid-
TABLE 7
ORDINARY LEAST SQUARES ESTIMATESOF THE IMPACTOF STATE LICENSING REGULATIONS
ON THE LOGARITHMOF PRICES OF DENTAL SERVICES(N = 50)
DEPENDENT VARIABLE:
LOG OF WEIGHTED
PRICE OF THE MOST
DEPENDENT VARIABLE: COMMON PROCEDURES
LOG PRICE OF FILLING IN THE AIR FORCE
A CAVITY SAMPLE
VARIABLE
INDEPENDENT (1) (2) (3) (4)
Restriction index of statute .01 -. .009
(.008) (.008)
Pass rate -.01* ... ..01*
(.003) (.003)
High regulation ... .11* .11*
(.06) ? (.06)
State per capita income .03* .04* .04* .05*
(.0.01 ).01) (.01) (.01)
Academic ability -.04 -.03 -.03 .03
(.05) (.04) (.04) (.04)
Fluoridation -.001 - .001 -.001 -.001
(.0007) (.0008) (.0007) (.001)
Constant -4.97 8.01 -4.35 7.72
(12.14) (13.34) (11.31) (12.31)
R2 .60 .48 .64 .54
F-test for joint significance of
the restrictiveness variables 7.99* . 7.73*
Mean and standard deviation of 43.10 47.42
the dependent variable ($) (8.04) (8.67)
NOTE.-Estimatedwith controlsfor state-levelmeasuresof education,percentminority,averagetime
of residencein the state, and age2.Estimatesof high regulationrelativeto mediumand low regulation
are presented.Thereare no significanteffects of high and mediumregulationrelativeto low. Standard
errorsare in parentheses.
ing the most neededdentalservicesby the Air Forcerecruitsare presented

in Table 7. The estimatesshown in the first two columnsrelate the effect
of licensingvariables,measuredboth as pass ratesand statutoryprovisions,
on the stateprices of a standarddentalfilling, the most commoncorrective
dentalprocedurein the United States. In columns 3 and 4, estimatesare
gearedto the dentalcorrectionneededin oursample.Eachcorrectiveproce-
dure was weightedby its use in the Air Force sample and pricedby state
to form estimatesof the weightedaveragecost of those proceduresin each
state, which is the dependentvariable.
The log dentalprice regressionsin Table 7 show thattougherlicensing,
as measuredby the pass rateor the overallmeasureof restrictivenessof the
state, is associatedwith an increasein prices. Using the results from the
table, a state thatchangedfrom a low or mediumto highestrestrictiveness

could expect to see an increasein the price of dentalservices of about 11
percent.This resultis in the low rangeof estimatesof between 8.5 and 18
percentfound by Shepardin the 1970s for the effect of more restrictive
dentallicensingon prices54andis consistentwith the statisticalresultscited
in the literaturereview. We also simulatedthe effect of a person in Ken-
tucky, a low-regulationstate, with one standarddeviation above average
dentaldeteriorationusing the Air Force recruits'data,and assumedthathe
had his dentalcorrectionsperformedin California-a state with tough li-
censing laws and procedures.The effect would be to increasethe overall
costs by $1,630 for the types of dentalproceduresthis personneeded,after
adjustingfor generalprice-leveldifferencesin the two states.
Given the increasein prices shownin Table7, aretheresimilarincreases
in hourlyincome or salariesby dentalpractitioners? In Table 8 we use data
from the 1 percentsamplefromthe 1990 PublicUse Samplefromthe cen-
sus to attemptto answerthis question.We obtainedthe individualfiles from
all personsin the dataset who listed themselvesas private-practice dentists
with theirhoursworkedin dentistry,totalearningsfromdentistry,andother
socioeconomiccharacteristics. Therewere 3,361 suchdentistsin the sample
who made over $5,000 from theirdentalpracticesand were under65 years
of age, our criteriafor inclusion.This is the cohortthatwas most likely to
have treatedthe personsin the Air Force sample.
In Table 8 we estimatethe effect of pass ratesand state statutesor, alter-
natively, the effect of being in a high- or medium-regulation state relative
to a low-regulationstate on the usual hourly earningsof the Public Use
Sampledentists.55 In columns 1-4, we presentthe estimatedwage equation
with controlsfor standardhumancapitalvariables,the mean scores of the
enteringdentiststo the majordentalschool in the appropriatestate, and a
dummyvariablefor whetherthat state was partof a regionaltesting pro-
gramin 1990 (when these programsbecamewidespread).The standarder-
rors are correctedfor groupeddata.56We find in columns 1 and 2 thata 10
percentincreasein the pass rate is associatedwith a significant6 percent
decreasein hourly dentalearnings.The results using categoricalvariables
in column 3 show that dentistsin the most regulatedstates earn a statisti-
cally significant12 percentmore than practitionersin the least regulated
54 Shepard,supra note 1.
55 We also estimatedthe equationswith average annualearningsfrom Steven Ruggles
et al., IntegratedPublic Use MicrodataSeries (IPUMS),Ver. 2.0 (1997), as the dependent
variableand found similarresultsto those presentedin Table 7.
56 Moulton, supra note 48.
TABLE 8
ORDINARY LEAST SQUARES ESTIMATESOF THE IMPACTOF STATE LICENSING
REGULATIONSON HOURLY EARNINGS FROMDENTISTRY (N = 3,361)
DEPENDENT VARIABLE: LOG OF HOURLY EARNINGS
INDEPENDENT VARIABLE (1) (2) (3) (4)
Intercept -.55 -.75 - 1.28* - 1.29*

(.46) (.46) (.37) (.36)
High regulation ... ... .12* .11*
(.04) (.04)
Medium regulation .03 .03
. (.03) (.04)
Restrictiveness of statute -.01 -.01
(.01) (.02)
Pass rate -.006* -.005* .
(.002) (.002)
Female -.45* -.45* -.45* -.45*
(.05) (.05) (.05) (.05)
Nonminority .20* .21* .20* .21*
(.06) (.06) (.05) (.06)
Age .16* .16* .16* .16*
(.01) (.01) (.01) (.01)
Age2 - .002* - .002* -.002* -.002*
(.0001) (.0001) (.0001) (.0001)
Citizen .14* .14* .14* .14*
(.06) (.06) (.05) (.06)
Married .20* .20* .20* .20*
(.04) (.04) (.04) (.04)
Academic ability .05 .07 .08 .08
(.05) (.05) (.05) (.04)
Region No Yes No Yes
R2 .20 .20 .20 .20
F-test for joint significance of
the restrictiveness variables 4.82* 4.09* 6.21" 5.47*
Mean and standard deviation of
the dependent variable 41.02
(43.58)
NOTE.-Estimatesincludea dummyfor those statesthatwere partof a regionaltestingservice.Stan-
darderrorsare in parenthesesand includecorrectionsfor groupbiases.
states. We add controlsfor the majorcensus region in which the dentists

lives in column4 of the table to controlfor regionaleffects that our other
variablesmay not be capturing.With these additionalcontrolsthe estimate
falls to a still statisticallysignificant11 percentusing the categoricalvari-
ables for state regulation.Alternativeestimateswith varyingspecifications
using pooled state time-series data gave similar results." The estimates
57 We used state-level data from the American Dental Association published in Council
on Dental Education, Suppl. 11 to the Annual Report 86/87 1-27 (1987), along with data
from the table show that dentistscould increasetheir wages by practicing

in the most restrictivestates.
II. CONCLUSIONS
We have analyzedthe effect of stricteroccupationallicensing require-
ments on economicoutcomes,dentalprices, and earningsusing dentalrec-
ordsof the consumersof these services.Priorstudiesfailed to examinefully
the potentialbenefits of the licensing process, includingthe potentialin-
crease on both qualityand quantityof service sector outputs.Initially,we
reviewed the empirical literatureon occupational licensing. Next, we
sketcheda model linkingregulationto the flow of new dentistsas well as
to qualityandprices.We thendevelopednecessarydatausing an especially
designedinstrumentthat linkedAir Force recruitdentalexams with socio-
economic characteristics.Alternativemultivariatestatisticalmodels were
used to test the effect of morerestrictivelicensingprovisions,firston dental
outcomes and then on the prices of dental service prices and practitioner
earnings.
Given the model in Figure 1, we are able to providesome evidence on
how tougherdentalregulationreducesthe flow of dentiststo the statesover
time. We also show that stricterregulationraises prices but has no effect
on untreateddeterioration.If our model is correct, this occurs through
higherqualitydentalvisits and hence greaterdemandat any full price, an
unobservablein our data.On the otherhand,more stringentregulationdoes
not appearto affect some indirect measuresof service quality, such as
lower malpracticepremiumsor fewer patientcomplaints.We leave to fu-
ture researchto show how, or if, this relationshipcan be empiricallyveri-
fied.
Our multivariateestimatesshow that increasedlicensing restrictiveness
did not improvedentalhealth,but it did raise the prices of basic dentalser-
vices. Further,using several tests for the robustnessof our estimates,we
found that the states with more restrictivestandardsprovidedno signifi-
cantly greaterbenefits in terms of lower cost of untreateddental disease.
Our estimatesof the price equationsshow that more regulatedstates have
somewhathigherdentalprices.In addition,moreregulatedstateshave den-
tists with higherhourlyearnings.These resultsare consistentwith the view
from the U.S. Census Bureau,StatisticalAbstractof the United States (1988), in a pooled
time-seriesestimateof high and mediumversuslow levels of regulationfromthe 38 largest
states from 1978 to 1987 (the only years for which we could obtainfull datafor all of our
covariates)on the log of dentistsincomes. We found a coefficientvalue of .10 (SE = .06)
with controlsfor stateper capitaincome, academicabilityof dentalschool entrants,level of
fluoridationin the state, educationlevel, percentminority,averageage of the residencein
the state, and age2.These resultsare availablefrom the authors.
thattougherlicensingstandardsimposedby the most rigidstatestatutesand

administrativeproceduresmay be an unnecessaryrestrictionon entry with
little to no benefitto the public.Consequently,movingtowardmorerestric-
tive policies that limit customeraccess to these services could reducethe
welfare of consumers.
These resultsdo not provideevidence to supportor rejectthe overallef-
ficacy of occupationallicensingas an institutionrelativeto a regimeof, for
example, certificationthat does not restrictoccupationalentry by statute.
Rather,our analysisaddressesonly the potentialcosts and benefitsto con-
sumersof developingmore rigid standardsin statesthathave relativelyre-
laxed ones. To the extentthatstatesare consideringa reductionin the pass
rate on dental exams or making it more difficult for out-of-stateprac-
titionersto enter,our analysissuggeststhattherewouldbe no gains to con-
sumersin termsof overalldentalhealth.Further,althoughour analysisap-
plies mainly to dentalcare of young adultpatients,we also providesome
evidence for the general population.We encouragemore analysis of the
type employedin this paperfor otherhighly regulatedoccupationsso that
economists,consumers,and policy makerscan more accuratelyassess the
potentialoutcomesof licensingpractices.
APPENDIX
TABLEAl
OF A MODELOF DENTALHEALTHBASEDON INDIVIDUAL
ESTIMATES DEMAND-TOBIT
ESTIMATES:
TOTALDENTALDEPRECIATION(N = 464)
DEPENDENT VARIABLE: DEPENDENT VARIABLE:

LOG DOLLAR VALUE OF LOG DOLLAR VALUE OF
TOTALDEPRECIATION TOTALINCOME
INDEPENDENT
VARIABLE (1) (2) (3) (4)
Total depreciation ...... .095* .094*
(.009) (.009)
High regulation ... -.50 ... -.67
(.51) (.41)
Mediumregulation ... -.23 ... .039
(.42) (.37)
Restrictiveness of statute -.01 ... -.01
(.031) (.05)
Pass rate -.03 ... .05
(.025) (.02)
Price of prevention -.0009 .002 .002 .007
(.004) (.005) (.005) (.010)
Price of correction .019 .011 .005 .002
(.021) (.012) (.03) (.016)
Income per family member -.0008 -.001 -.002 -.001
(.009) (.009) (.012) (.02)
Education .032 .034 .134* .14*
(.055) (.055) (.071) (.07)
Insurancecoverage -.203 -.191 .859* .869*
(.222) (.222) (.282) (.282)
Academicabilityof dentistsin .081 .053 .534 .375
the state (.292) (.267) (.369) (.337)
Fluoridation .003 .003 .005 .005
(.003) (.003) (.003) (.003)
Constant .205 2.94 -9.06 -3.48
Log likelihood -987.45 -987.17 -990.59 -990.04
Likelihoodratiotest for joint
significanceof restrictiveness
variables 1.23 1.80 2.49 3.57
NOTE.-Estimatedwith controlsfor gender,race,age, childhoodin military,andmissingvalues.Stan-
darderrorsare in parenthesesand includecorrectionsfor groupbiases.
577
TABLEA2
REDUCED-FORMTOBIT ESTIMATESAND THEIR MARGINAL EFFECTS OF THE IMPACTOF STATE
ON UNTREATED DENTAL DETERIORATION(N = 464): DOLLAR VALUES FROM STAT
DEPENDENT VARIABLE: DOLLAR VALUE OF UNTREATED DET
Marginal Marginal
Effects Effects
VARIABLE
INDEPENDENT (1) (2) (3) (4) (5)
High regulation ... ... -.066 -.046 ...
(.073)
Mediumregulation ... ... -.118 -.082 ...
(.056)
Restrictivenessof statute .008 .006 ... -... .010
(.005) (.005
Pass rate .004 .003 ... ... .002
01 (.003) (.005)
Ot: Income per family member -.003 -.002 -.003 -.002 .001
(.002) (.002) (.002)
Education -.023* -.016 -.023* -.016 -.028*
(.012) (.011) (.010)
Insurance coverage ... - - .- . -.26*
(.06)
Academic ability of dentists in the state ... ... ... ... .02
(.06)
Fluoridation ... ... ..... .0003
(.001)
Constant .231 .675 .865
(.345) (.146) (.740)
Log likelihood - 348.60 - 347.48 - 327.18
NOTE.-Estimatedwith controlsfor gender,race, age, childhoodin military,and missingvalues. Standarderrorsar
groupbiases.
TABLEA3
TOBITESTIMATES
REDUCED-FORM ANDTHEIRMARGINALEFFECTS OF STAT
OF THEIMPACT
ON UNTREATED (N = 441): DELETINGOUTLIERS
DENTALDETERIORATION AT
DEPENDENT VARIABLE: DOLLAR VALUE OF UNTREATED DET
Marginal Marginal
Effects Effects
INDEPENDENT
VARIABLE (1) (2) (3) (4) (5)
High regulation ... ... -.073 -.049
(.075)
Medium regulation ... ... -.101 -.068
(.055)
Restrictivenessof statute .009 .006 ... . .010
(.005) (.005)
Pass rate .005 .003 ... ... .003
INC (.003) (.005)
Income per family member -.002 -.002 -.003 -.002 .001
(.002) (.002) (.002)
Education -.023* -.016 -.023* -.016 -.028*
(.011) (.011) (.010)
Insurance coverage ... ... -.24*
(.05)
Academic ability of dentists in the state ... - .. ... .02
(.06)
Fluoridation ... ... ... .0006
(.001)
Constant .086 .625 .569
(.336) (.141) (.759)
Log likelihood -329.67 -329.50 -309.53
NOTE.-Estimated with controls for gender, race, age, childhood in military, and missing values. Standard errors ar
biases.
group
BIBLIOGRAPHY
Arrow, Kenneth J. Essays in the Theory of Risk-Bearing. Chicago: Markham Pub-

lishing, 1971.
Bartholomew, David. The Statistical Approach to Social Measurement. London:
AcademicPress, 1996.
Benham,Lee. "The Demandfor OccupationalLicensure."In OccupationalLicen-
sure and Regulation,edited by S. Rottenberg,pp. 13-25. Washington,D.C.:
AmericanEnterpriseInstitute,1980.
Boesel, David. "The DOD Survey of Recruit Socioeconomic Backgrounds."
Washington,D.C.: U.S. Defense ManpowerData Center,1989.
Boulier,Brian."An EmpiricalExaminationof LicensureandLicensureReformon
the Geographic Distribution of Dentists." In Occupational Licensure and Regu-
lation, editedby S. Rottenberg,pp. 73-97. Washington,D.C.: AmericanEnter-
prise Institute,1980.
Carroll,Sidney L., and Gaston,R. J. "OccupationalRestrictionsand the Quality
of Service Received: Some Evidence." SouthernEconomicJournal 47 (April
1981): 959-76.
Carlton,DennisW., andPerloff,JeffreyM. ModernIndustrialOrganization.2d ed.
New York:HarperCollins,1994.
Christen,A. G., et al. "United States Air Force Survey of Dental Needs, 1977
Methodology and Summary of Findings." Journal of the American Dental Asso-
ciation 98 (March1979): 726-30.
Councilof StateGovernments.OccupationalLicensing.Lexington,Ky.: Councilof
State Governments,1987 and 1994.
Council on Dental Education. Supplement 11 to the Annual Report 86/87 (1987):
1-27.
DentalEconomics.Unpublishedtabulationson pricesof dentalproceduresby state,
providedto the authors,1993.
Freeman,RichardB. "Legal Cobwebs:The ChangingMarketfor Lawyers."Re-
view of Economics and Statistics 57, no. 2 (1975): 171-79.
Freeman,RichardB., and Kleiner,MorrisM. "The Impactof New Unionization
on Wages andWorkingConditions."Journalof LaborEconomics8 (1990): S8-
S25.
Friedman, Milton, and Kuznets, S. Income from Independent Professional Practice.
New York:NationalBureauof EconomicResearch,1945.
Fuchs, Victor R. "Time Preferenceand Health:An ExploratoryStudy." In Eco-
nomicAspectsof Health,editedby VictorR. Fuchs,pp. 93-120. Chicago:Uni-
versityof ChicagoPress, 1982.
Getz, M.; Siegfried,J.; and Calvani,Terry."Competitionat the Bar:The Correla-
tion betweenthe Bar ExaminationPass Rate and Profitabilityof Practice."Vir-
ginia Law Review 67 (June 1981): 863-85.
Holen, Arlene. The Economics of Dental Licensing. Final report submitted to the
U.S. Departmentof Healthand HumanServices, 1978.
Klein, H.; Palmer,C. E.; and Knutson,J. W. "Studies on Dental Caries:Dental
Status and Dental Needs of ElementarySchool Children."Public Health Re-

porter 53 (1938): 751-65.
Kleiner,MorrisM. "Are ThereEconomicRentsfor MoreRestrictiveOccupational
LicensingPractices?"In Proceedings,IndustrialRelationsResearchAssociation,
1990.
Kleiner,MorrisM.; Gay, R.; and Greene,K. "Barriersto LaborMigration:The
Case of OccupationalLicensing."IndustrialRelations21, no. 3 (1982): 383-91.
Kleiner, Morris M., and Kudrle,Robert T. "Do TougherLicensing Provisions
Limit OccupationalEntry:The Case of Dentistry?"National Bureauof Eco-
nomic ResearchWorkingPaperNo. 3984. Washington,D.C.: NBER, 1992.
Knutson,J. W.; Klein,H.; andPalmer,C. E. "DentalNeeds of Grade-SchoolChil-
dren in Hagerstown, Maryland." Journal of the American Dental Association 27
(1940): 579-88.
Kraemer, Helena Chmura, and Thiemann, Sue. How Many Subjects? Statistical
PowerAnalysis.NewburyPark,Cal.: Sage Publications,1987.
Kudrle, Robert T. "Dental Care." In National Health Insurance: Conflicting Goals
and Policy Choices,editedby J. Feder,J. Holahan,andT. R. Marmor,chap. 12.
Washington,D.C.: UrbanInstitute,1980.
Kudrle,RobertT., and Meskin,L. "Introduction."In Reducingthe Cost of Dental
Care,editedby R. T. Kudrleand L. Meskin.Minneapolis:Universityof Minne-
sota Press, 1983.
Leland,HayneE. "MinimumQualityStandardsin Marketswith AsymmetricInfor-
mation." In Occupational Licensure and Regulation, edited by S. Rottenberg,
pp. 265-84. Washington,D.C.: AmericanEnterpriseInstitute,1980.
Little, Roderick, and Rubin, D. Statistical Analysis with Missing Data. New York:
JohnWiley & Sons, 1987.
Maurizi,Alex. "OccupationalLicensingandthe PublicInterest."Journalof Politi-
cal Economy82 (March/April1974): 399-413.
Meskin,Lawrence."Time for a DentalBoardCheckup."Journalof the American
Dental Association 125 (November 1994): 1418-20.
Moulton,BrentR. "RandomGroupEffects and the Precisionof RegressionEsti-
mates." Journal of Econometrics 32 (1986): 385-97.
Neal, Derrick,andJohnson,W. R. "The Role of Pre-marketFactorsin Black-White
Wage Differences." Journal of Political Economy 104 (October 1996): 869-95.
Newhouse, Joseph P. Free for All? Lessons from the RAND Health Insurance Ex-
periment.Cambridge,Mass.:HarvardUniversityPress, 1993.
Oi, W. "The Economicsof Public Safety." Bell Journal of Economics4, no. 1
(Spring1973): 3-28.
Pashigian,B. Peter. "Has OccupationalLicensingReducedGeographicalMobility
and Raised Earnings?" In Occupational Licensure and Regulation, edited by S.
Rottenberg,pp. 299-333. Washington,D.C.: American EnterpriseInstitute,
1980.
Polachek,SolomonW. "OccupationalSelf-Selection:A HumanCapitalApproach
to Sex Differencesin OccupationalStructure."Reviewof Economicsand Statis-
tics 63 (February1981): 60-69.
Ruggles, Steven, et al. Integrated Public Use Microdata Series: Version 2.0. Min-
neapolis:Universityof Minnesota,HistoricalCensusProjects,1997.
Shapiro,Carl. "Investment,MoralHazardand OccupationalLicensing." Review
of Economic Studies 53 (1986): 843-62.
Shepard,Lawrence."LicensingRestrictionsandthe Cost of DentalCare."Journal
of Law and Economics 4 (April 1978): 185-201.
Stepnick, R. J.; Keene, H. J.; and Bognore, R. Dental Caries, Periodontal Disease,
and Oral Hygiene Interrelationships in Naval Recruits. Great Lakes, Ill.: Naval
DentalResearchInstitute,1975.
U.S. Departmentof Commerce.Bureauof the Census. "DentalStatistics."In Vital
Health Statistics of the United States. Washington, D.C.: U.S. Government Print-
ing Office, 1988.
Wang,Andrew."EconomicReformand StateEnterpriseProductivityin China:An
Applicationof RobustEstimationand LatentVariableMeasurementMethods."
Ph.D. dissertation.Cambridge,Mass.: HarvardUniversity,Departmentof Eco-
nomics, 1997.
Wheelan,CharlesJ. "Politicsor PublicInterest?An EmpiricalExaminationof Oc-
cupationalLicensure." Unpublishedmanuscript.Chicago: University of Chi-
cago, May 1999.

The University of Chicago Press

Uploaded by

Copyright:

Available Formats

You might also like

The University of Chicago Press

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The University of Chicago Press

Uploaded by

Copyright:

Available Formats

Does Regulation Affect Economic Outcomes?

The Case of Dentistry

This study examinesthe role of variationsin occupationallicensing policies in

Do morerestrictiveoccupational licensingstatutesand administrative

[Journal of Law & Economics, vol. XLIII (October 2000)]

public.'The main effects are assumedto be higherprices and, potentially,

benefitsof the currentsystem of occupationallicensureneeds to be exam-

LawrenceShepard,Licensing Five-equationmodel estimated Price increasesresulting

ies implicitly held quality constantwhile concentratingattentionon esti-

0oR. J. Stepnick,H. J. Keene,& R. Bognore,DentalCaries,PeriodontalDisease, andOral

strictiveness,neitherstudyallows for manyotherkey variablesandthe rela-

B. AnalyzingLicensureEffectson Demandon Outputs

12DennisW. Carlton& JeffreyM. Perloff,ModemIndustrialOrganization(2d ed. 1994).

DENTAL REGULATION UNTREATED

1.-Regulation's impacton untreateddentaldeterioration

try restrictionsare increased,as shown on the bottomportionof Figure 1,

14 Unfortunately,the qualityof a dentalvisit is an unobservablein our data set with the

Eitherlower qualitycandidateswould be rejectedby a state or those indi-

16 Further, more dentists might be more effective lobbying for dental

measuresof inputproductivity,and the distinctionbetweenthe numberof

HSt = (1 - DRt + CR,)HS,_I. (4)

TD, = (1 - DR, + CR,)HSo. (5)

Thus we can define untreateddeterioration'9

17 W. Oi, The Economicsof Public Safety,4 Bell J. Econ. 3 (1973).

The deteriorationof dentalhealthstatuswill varyconsiderablyacrossin-

21 RobertT. Kudrle& LawrenceMeskin, Introduction to Reducingthe Cost of Dental

In additionto its obvious significancefor CR in equations(4) and (5)

24 Councilof State Governments,OccupationalLicensing(1987, 1994). This sourcealso

some independentvariablesinvolvedseveralsteps.As stated,we assembled

28 Both David Bartholomew, The StatisticalApproachto Social Measurement(1996), and

30 Since the childrenof militarypersonnelenlist to greaterdegreethanthe generalpopula-

tion, we checkedthis issue in our sample.We foundthatonly 27 individualsmay have spent

Quality measures (N = 464):

of varyinglicensingprocedureson the qualityof servicesreceivedfor indi-

treatmentby generalpractitionersobtainedfromthe 1992 surveyfromDen-

34Dental Economics(unpublishedmanuscript,tables on prices of dental proceduresby

regulationswerethose stateswith pass ratesbetween80 percentand90 per-

D. Estimating a Model of Dental Health Based on Individual Demand

A. STATES WITH HIGHEST DENTAL QUALITY

Lowest WeightedTotalDeterioration Lowest WeightedUntreatedDeterioration

HighestWeightedTotal Deterioration HighestWeightedUntreatedDeterioration

treateddentaldeterioration.We now turnto multivariateanalysisthatcon-

of state regulationincludinglicensing provisionsas well as a control for

40 Fluoridation policies are frequentlydeterminedby substatejurisdictions.Since we had

significantdeterminantsof total correction.These resultsare shown in AppendixTable Al.

(8) and (9) we can estimateUD/TD (untreateddentaldepreciationdivided

43 In orderto check for functionalform of our specifications,we also estimatedtotal un-

DEPENDENT VARIABLE: DOLLAR VALUE OF UNTREATED DETE

ginal effects includestandarderrorscorrectedfor groupeddata.48Pass rates

48 Additionalspecificationsthatincludedcontrolsfor the interaction

by economic status showed no large or significanteffects of occupational

52 In a mannersimilarto RichardB. Freeman& MorrisM. Kleiner,The Impactof New

ORDINARY LEAST SQUARES ESTIMATESOF THE IMPACTOF STATE LICENSING REGULATIONS

10 percentincreasein the pass rate is to increasedentistsper capitaby 2

E. Effect of Tougher Regulations on the Prices of

INDEPENDENT VARIABLE (1) (2)

Pass rate .003*