Regulation and Distrust


Aghion, Philippe, Yann Algan, Pierre Cahuc, and Andrei Shleifer. 2010. “Regulation and Distrust.” Quarterly Journal of Economics 125 (3): 1015-1049.
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We document that, in a cross section of countries, government regulation is strongly negatively correlated with measures of trust. In a simple model ex- plaining 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.

Last updated on 02/21/2013