Change and response: An economic theory of professions with an application to pharmacy

Date of Completion

January 1993


Economics, History|Economics, Theory|Health Sciences, Pharmacy




This dissertation constructs an economic theory of professions. It defines a profession as a network of strategic alliances across ownership boundaries among independent practitioners who share a core competence. And it differentiates among alternative economic institutions by examining their capabilities and strategies for coordinating exchange and production. Networks are non-hierarchical organizations that convey authority and autonomy on their members without resorting to contracts. Because professional production is based on shared routines and tacit knowledge, such production is neither contractible nor appropriable. Therefore, professional production cannot be coordinated through markets or firms. Networks have unique capabilities for coordinating routines based on tacit knowledge. In addition, they simulate the incentives of market coordination through reliance on entrepreneurial practitioners, reputation and peer monitoring. They emulate the coordinating capabilities of firms through a complex set of feedback mechanisms and sub-institutions.^ The dissertation analyzes several of these sub-institutions, including self-regulation, professional associations, codes of ethics, and licensing. One conclusion is that licensing is neither necessary nor sufficient for the existence of professions, so that similar boundaries between institutions would arise naturally from strategic application of institutional capabilities. Another conclusion is that competition is alive and well within professional networks, and between networks and other institutions--if one knows where to look for it.^ The empirical test of the theory is the economic history of pharmacy. First, the dissertation identifies the capabilities that determine the natural boundaries of the pharmacy profession. The pharmacist's central task has always been the certification of the strength and purity of medicinal drugs. Over time, changes in technology and institutions, coupled with evolving theories of disease, have altered the location of drug research, production and dispensing. Each episode of change has resulted in border skirmishes between pharmacy and medicine, which have spilled over onto other institutions as well. The dissertation examines two modern examples of this phenomenon. First, it looks at current initiatives to allow pharmacists, nurses, and psychologists to prescribe drugs and to permit physicians to dispense them. Then it looks at the recent decision by pharmacy schools to abandon the granting of undergraduate degrees in favor of a terminal Pharm.D. ^