Regulation and Distrust

Philippe Aghion (1) , Yann Algan (2, 3) , Pierre Cahuc (4, 5) , Andrei Shleifer (1)

1 Harvard University [Cambridge]
2 ECON - Département d'économie (Sciences Po)
3 CEPREMAP - Centre pour la recherche économique et ses applications
4 X - École polytechnique
5 CREST - Centre de Recherche en Economie et Statistique [Bruz]

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.

Keywords: Economic regulation; Measures of trust; Government regulation; Economic regulation

Domains: Humanities and Social Sciences; Economics and Finance

Philippe Aghion, Yann Algan, Pierre Cahuc, Andrei Shleifer. Regulation and Distrust. Quarterly Journal of Economics, 2010, 125 (3), pp.1015 - 1049. ⟨10.1162/qjec.2010.125.3.1015⟩. ⟨hal-03384665⟩