Regulation and Distrust / Philippe Aghion, Yann Algan, Pierre Cahuc, Andrei Shleifer.

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Aghion, Philippe

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w14648.Publication details: Cambridge, Mass. National Bureau of Economic Research 2009.Description: 1 online resource: illustrations (black and white)Subject(s):

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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.

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Previous	nber w14645 An Elementary Theory of Comparative Advantage /	nber w14646 Learning in Financial Markets /	nber w14647 Social Security Programs and Retirement Around the World: The Relationship to Youth Employment, Introduction and Summary /	nber w14648 Regulation and Distrust /	nber w14649 Information, Liquidity, and the (Ongoing) Panic of 2007 /	nber w1465 International Comparison of the Sources of Productivity Slowdown 1973 1982 /	nber w14650 Vertical Integration, Institutional Determinants and Impact: Evidence from China /	Next

January 2009.

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.