THE ECONOMIC POINT OF VIEW ON EXPERTS
Economic theory identifies the likely consequences of different market structures. Those consequences can be surprising. Rent control, for example, is usually touted as a measure to make housing more affordable. Standard economic theory surprises us by showing that it tends to make housing less affordable. (The evidence seems to support this conclusion of economic theory. For theory and evidence, see Coyne and Coyne 2015.) Journalists and others often speak of “the law of unintended consequences” when discussing such surprises. An economic theory of experts has its surprises as well.
Many of us tend to think of experts as reliable and truthful. Examples of expert failure may be met with calls for oversight or “regulation.” We are not used to asking about the structure of the market for expert opinion. We should. We tend to think of experts in hierarchical terms, but we should take a transactional approach. Different market structures will create different outcomes. The general thrust of both mainstream and mainline economics is that competition tends to produce outcomes that are generally viewed as favorable, whereas monopoly and monopsony tend to produce outcomes that are generally viewed as unfavorable. This generalization applies to the market for expert opinion as well. Details matter. One must not simply invoke the potentially empty words “competition” and “monopoly,” declaring the one to be good and the other bad. But in the market for expert opinion, as with other markets, the general rule is that competition tends to outperform the available alternatives.
In a competitive market for expert opinion, the return to the marginal expert's specialized knowledge will tend toward the ordinary rate of return adjusted for factors such as risk and the pains or pleasures of acquiring and using that knowledge. Entry restrictions will tend to raise the rate of return on the expert's specialized knowledge and increase the expert's monopoly power as measured by the elasticity of demand. In Chapter 11 I will note that professional organizations such as the American Medical Association may work toward entry restrictions that tend to reduce the supply of such professionals and raise the price of their professional advice.