A rent-limiting design of professional self-regulation

Abstract

We consider a government that purchases a public good or a private good for public consumption from a heterogenous group of professionals (such as scientists, doctors, or lawyers) in an environment characterized by an extremely high level of information asymmetry. Specifically, we assume that the government needs information from a self-regulatory organization (SRO) of agents (such as a research council, a medical board, or a bar association) to draft the contract. We show that the government information disadvantage is minimized when the SRO is dictatorial, that is, when it follows the preferences of the efficient agents.