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Trust, Regulation and Market Failures

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Author Info

  • Paolo Pinotti

    (Bocconi University and Dondena Centre for Research on Social Dynamics)

Abstract

Government regulation of firms is associated with more negative externalities and unofficial activity across countries. I argue that this correlation mainly reflects causality going from concerns about market failures to demand for government intervention. Using trust in others as a proxy for such concerns, I show that differences in trust explain a great deal of variation in entry regulations. Then, controlling for trust in the regression of market failures on regulation, the latter is no longer associated with worse economic outcomes. The same result is confirmed when I exploit country population as an alternative source of variation in regulation. © 2012 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00209
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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 94 (2012)
Issue (Month): 3 (August)
Pages: 650-658

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Handle: RePEc:tpr:restat:v:94:y:2012:i:3:p:650-658

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Web page: http://mitpress.mit.edu/journals/

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Related research

Keywords: trust; regulation; market failures;

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Cited by:
  1. Alberto Alesina & Paola Giuliano, 2013. "Culture and Institutions," NBER Working Papers 19750, National Bureau of Economic Research, Inc.
  2. Matthias Bürker & G. Alfredo Minerva, 2012. "Civic Capital and the Size Distribution of Plants: Short-Run Dynamics and Long-Run Equilibrium," Working Papers 2012.81, Fondazione Eni Enrico Mattei.
  3. Pauline Grosjean & Frantisek Ricka & Claudia Senik, 2011. "Learning, political attitudes and the crisis in transition countries," Working Papers 140, European Bank for Reconstruction and Development, Office of the Chief Economist.
  4. Antonio Accetturo & Guido de Blasio & Lorenzo Ricci, 2014. "A tale of an unwanted outcome: transfers and local endowments of trust and cooperation," Temi di discussione (Economic working papers) 959, Bank of Italy, Economic Research and International Relations Area.
  5. Marcus Dejardin & Helene Laurent, 2014. "Greasing the wheels of entrepreneurship? A complement according to entrepreneurial motives," Working Papers 1402, University of Namur, Department of Economics.

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