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Regulation and Distrust

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  • Aghion, Philippe
  • Algan, Yann
  • Cahuc, Pierre
  • Shleifer, Andrei

Abstract

We document that, in a cross section of countries, government regulation is strongly negatively correlated with measures of trust. In a simple model explaining this correlation, distrust creates public demand for regulation, whereas regulation in turn discourages formation of trust, leading to multiple equilibria. A key implication of the model is that individuals in low-trust countries want more government intervention even though they know the government is corrupt. We test this and other implications of the model using country- and individual-level data on trust and beliefs about the role of government, as well as on changes in beliefs during the transition from socialism.

Suggested Citation

  • Aghion, Philippe & Algan, Yann & Cahuc, Pierre & Shleifer, Andrei, 2010. "Regulation and Distrust," Scholarly Articles 12490649, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:12490649
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    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems

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