NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Regulation and Distrust

Philippe Aghion, Yann Algan, Pierre Cahuc, Andrei Shleifer

NBER Working Paper No. 14648
Issued in January 2009
NBER Program(s):   CF   POL

In a cross-section of countries, government regulation is strongly negatively correlated with social capital. We document this correlation, and present a model explaining it. In the model, distrust creates public demand for regulation, while regulation in turn discourages social capital accumulation, leading to multiple equilibria. A key implication of the model is that individuals in low trust countries want more government intervention even though the government is corrupt. We test this and other implications of the model using country- and individual-level data on social capital and beliefs about government's role, as well as on changes in beliefs and in trust during the transition from socialism.

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Document Object Identifier (DOI): 10.3386/w14648

Published: Philippe Aghion & Yann Algan & Pierre Cahuc & Andrei Shleifer, 2010. "Regulation and Distrust," The Quarterly Journal of Economics, MIT Press, vol. 125(3), pages 1015-1049, August.

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