Regulation and Distrust

In an interesting paper, Aghion, Algan, Cahuc and Shleifer show that regulation is greater in societies where people do not trust one another.  The graph below, for example, shows that societies with a greater level of distrust have stronger minimum wage laws.  Note that the result is not that distrust in markets is associated with stronger minimum wages but that distrust in general is associated with greater regulation of all kinds.  Distrust in government, for example, is positively correlated with regulation of business.  Or to put it the other way, trust in government (as well as other institutions) is associated with less regulation.

minwagedistrustrespectdistrustAghion et al. argue that the causality flows both ways on the regulation-distrust nexus. Distrust makes people turn to government but in a society with a lot of distrust government is often corrupt and this makes people distrust even more.  Crucially, when people distrust others they invest not in the highest return projects but in human and physical capital that is complementary to distrust–for example, they invest in human capital that helps them bond with their group/tribe/family rather than in human capital that helps them to bond with “outsiders” and they invest in physical capital that is more difficult to expropriate rather than in easier to expropriate capital, even though in both cases the latter investments may be the all-else-equal higher return investments.  Such distrust traps are quite similar to Bryan Caplan’s idea traps.

Thus, societies with a lot of distrust generate regulation and corruption and citizens who don’t have the skills or preferences to break out of the distrust equilibrium.  Consider, for example, that in societies with a lot of distrust parents are less likely to consider it important to teach their children about tolerance and respect for others.

Comments

Interesting ? Not for what is posted here, at least. The second regression is a shame that would get busted if an undergrad made it. The core problem is that the author use the World Values Survey, notoriously unreliable. I cannot understand how this made it to the QJE.

Comments for this post are closed

"Aghion et al. argue that the *causality flows both ways* on the regulation-distrust nexus"

Oh my god ! an undergrad should know that this invalidates the use of regression

Comments for this post are closed

The causality seems pretty simple to me: high levels of regulation produce rent-seeking behavior (i.e. corruption), which generates distrust.

Comments for this post are closed

I'd be willing to bet an exponential would fit the first graph a lot better. At least use something that does not trend the value of a fraction of a population becoming negative.

Comments for this post are closed

Take first graph, flip axes, and draw line from Dk to Hg, and calculate fit.

Comments for this post are closed

So what happens when people trust say the finance industry more than it deserves. Ooops, i guess we know the answer.

Comments for this post are closed

Tiffany silver jewelry based Tiffany on sale, classic or modern stylish quality jewelry for both women and men. Our online store now is using McAfee security technology to protect our customers from identity theft, credit card fraud, spam and malicious software. Also we have developed some return and exchange policy for customer service purposes.Shopping online at Tiffany on sale mean
tiffany jewelry tiffany jewelry
Gucci Shoes
Tiffany Rings
Tiffany Earrings
Tiffany Necklaces
Tiffany Earrings
Tiffany & Co specialises in quality handcrafted designer silver tiffany jewelry, Tiffany On Sale provides hundreds of discount Tiffany & Co jewelry, Pendants.Tiffanys And Co Jewelry
Tiffany Bracelets
Tiffany Rings
Tiffany Necklaces
Gucci Shoes
Louis Vuitton
Gucci Shoes

Comments for this post are closed

I have really enjoyed browsing your posts. Thanks for sharing this information. Someone on Yahoo Answers referred me here and I love it.

Comments for this post are closed

this was nice
anxiety attacks

Comments for this post are closed

Nice post,nice sharing.Thanks!

Comments for this post are closed

The things that have been trusted most in the past quarter century seem to be greed and self interest driven by the belief that they are trying to impose regulations and take your money

Comments for this post are closed

Excellent post,thanks for sharing.
XLS to PDF 3000 is a versatile xls tp pdf software which can convert xls to pdf with super speed and high quality.To Convert AVI to DVDhere is an ideal solution. Using this AVI to DVD Converter, you are allowed to convert avi, mp4, wmv, mpeg, flv to DVD and burn into your own special DVD disks with a few steps.
Blu-ray Ripper support four Blu-ray ripper for your chosen to rip Blu-ray and DVD,at least one Blu-ray ripper will to suit you.

Comments for this post are closed

Summer is coming, and now wants to go to the beach,if i have a pair of sunglasses that would be wonderful, so my eyes will not be pain sun,but where can i buy cheap [url=http://www.pickguccis.com/]gucci sunglasses[/url] [url=http://www.pickguccis.com/gucci-shoes-for-men-c-6.html/]gucci shoes[/url] ?

Comments for this post are closed

The things that have been trusted most in the past quarter century seem to be greed and self interest driven by the belief that they are trying to impose regulations and take your money

Comments for this post are closed

fyhfghfghh

Comments for this post are closed

Well, then the point of salary increase package the night her enough money? A man can be assertive enough! Chen Feng Mamalielie to go out. The next day, drawing people like inflammation as they come to him all right, he also nothing really, ok,

Comments for this post are closed

Everything is very open and very clear explanation of issues. was truly information. Your website is very useful. Thanks for sharing.

Comments for this post are closed

have a good time

Comments for this post are closed

Bluefly.Com has a great selection of these Gucci Wellies Rainboots. They have them in black, Silver, bronze and a rusty red... Last I checked they had a couple sizes left. But you better move fast because these boots are very popular!I have the Rusty red ones- and I love them!

Comments for this post are closed

Comments for this post are closed