Bruce Kobayashi, Timothy Muris, Jul 28, 2013
In his oft quoted dissent in New State Ice v. Liebmann, Justice Brandeis noted that “it is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” An important by-product of the variation in state law produced by these laboratories of democracy is the opportunity for empirical research. Measuring the effect of these different laws, both across states and over time, is now a standard and ubiquitously used methodology in law and economics.
Lee Benham’s 1972 article, The Effect of Advertising on the Price of Eyeglasses, represents an early, highly influential example of this empirical methodology, where the variation between state laws permits use of legislative “experiments” to study the effects of differing approaches to regulation. Benham found that mean prices of eyeglasses in states that prohibit advertising by optometrists were $6.70 (25 percent) higher than in states that did not prohibit such advertising. Cross-section regression analyses also found significant increases in the price of eyeglasses in states with complete restrictions on advertising, with average prices in such states $7.48 higher. Benham’s main result was robust to the inclusion of a variable to control for entry restrictions. He also found that mean prices for eyeglasses in states that only banned price advertising were higher than in states with no restrictions, but lower than in states with complete advertising restrictions.
