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Regulation and Distrust

Author

Listed:
  • Philippe Aghion
  • Yann Algan
  • Pierre Cahuc
  • Andrei Shleifer

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

  • Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1015-1049.
  • Handle: RePEc:oup:qjecon:v:125:y:2010:i:3:p:1015-1049.
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    File URL: http://hdl.handle.net/10.1162/qjec.2010.125.3.1015
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    JEL classification:

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

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