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Regulation and Distrust

  • Philippe Aghion

    (Harvard University.)

  • Yann Algan

    (Sciences PO, Observatoire Français des Conjonctures Economiques.)

  • Pierre Cahuc

    (Ecole Polytechnique, CREST.)

  • Andrei Shleifer

    (Harvard University.)

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. (c) 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

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Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 125 (2010)
Issue (Month): 3 (August)
Pages: 1015-1049

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Handle: RePEc:tpr:qjecon:v:125:y:2010:i:3:p:1015-1049
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