Regulation and Distrust

Philippe Aghion, Yann Algan (), Pierre Cahuc and Andrei Shleifer
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Philippe Aghion: Department of Economics, Harvard University - (-)
Pierre Cahuc: Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X

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Abstract: 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.

New Economics Papers: this item is included in nep-reg and nep-soc
Date: 2009-06-17
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Working Paper: Regulation and Distrust (2009)
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