Study: regulation correlated with distrust

Alex Tabarrok highlights an interesting study highly relevant to the debate on health care in the US:

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.

That has some interesting parallels in the financial meltdown, but it is healthcare that is on my mind at the moment.  Much of the debate against comprehensive coverage (and, thus, regulation) seems to stem from distrust of government.  The thinking goes–as I understand it–that government cannot do anything efficiently, and I don’t want to pay for waste or crack moms when I have a job and pay my bills and…  That’s not only distrust in government but also distrust in fellow citizens.

Government has given plenty of cause for distrust, and I suppose the current regime in Iran represents an extreme case.  The study is something to ponder as the health care debate goes forward, and one question for which I have not even a guess is:  how might this apply to public-private partnerships?

4 responses to “Study: regulation correlated with distrust

  1. Joe,

    I think it’s important to keep in mind that it is *ambient* distrust, not specifically distrust in gov’t, that is correlated with regulation. This is one of those findings that seems pretty obvious and yet it is comforting to have it confirmed empirically.

    Did the study include cultural heterogeneity too? Heterogeneity is negatively correlated with trust… which would suggest that in heterogenous public institutions, there is more regulation. (Sounds applicable to the EU and cheese challenges to me.)

    • I should add the caveat that I did not read the study itself–only the abstract and the analysis. I did find it interesting, though not necessarily surprising, to see that the causality flowed in both directions between trust and causality.

      Cheese is one of my favorite things about living in the EU. I’m glad they wrestle with such matters.

  2. Pingback: Week in Public Organizations, 29Jun2009 « PublicOrgTheory

  3. The Marginal Revolution blog provides some discussion on the validity of the data. The paper itself identifies but does not answer the begged question — why do nominally “equivalent” societies have markedly disparate ranks, Finland and Estonia, for example?

    I also see a feedback loop. Lack of trust may cause a need for regulation but once in place, the formal rules both mitigate the need for diffuse trust, but, as an unintended consequence, prevent the creation of that trust and in fact reinforce suspicion.

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