Abstract
This study examines society's choice of inputs for the creation of trust in professional services. Professional codes and their enforcement are only one possible input that society has at its disposal for the production of this trust. Other inputs include civil and criminal codes. If society is modeled as a multi-input “firm,” then it will tend to use less of any input as that input grows less productive or more costly. To identify factors that might impact society's future use of professional self-regulation as a trust-producing input, the productivities and costs of enforcing professional codes are modeled.
The effectiveness of professional enforcement is seen to have its origin in the losses members face if they leave the profession. These “exit costs” are analyzed in detail. Other factors affecting professional enforcement are also evaluated.
A mathematical model of society's choice problem, contingent on exit costs and other factors, permits formal derivation of several results. Among these are the ideas that monopoly rents and specificity of skills are important in creating the conditions that make professional enforcement possible. As these deteriorate, society's reliance on professional enforcement will decline, and its dependence on courts will rise.
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The author would like to acknowledge the advice and encouragement of Gary Becker, Ron Copeland, Robert Ruland, Steven Rytina, and Donald Siegel, as well as the contributions of workshop participants at the Critical Perspectives on Auditing Symposium, the State University of New York at Stony Brook, Northeastern University, Rutgers University, Baruch College, and Boston University.
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Donabedian, B. Self-regulation and the enforcement of professional codes. Public Choice 85, 107–118 (1995). https://doi.org/10.1007/BF01047905
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DOI: https://doi.org/10.1007/BF01047905