Regulation

Trust Fund

Regulation and corruption

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A new paper from the National Bureau of Economic Research tries to answer a seemingly intractable question: Why do people in countries with especially corrupt governments consistently demand more government intervention, not less?

Economists Philippe Aghion of Harvard, Yann Algan of Sciences Po Paris, Pierre Cahuc of Ecole Polytechnique, and Andrei Shleifer of Harvard examined the coevolution of culture and institutions using the World Values Survey, a global poll that asks questions such as "Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people?" and "Do you think that it is unjustifiable to cheat on government benefits?" Their findings suggest that there are two modes in which countries can get stuck, "a good one with a large share of civic individuals and no regulation, and a bad one, where a large share of uncivic individuals support heavy regulation."

In the first scenario, people are more likely to choose entrepreneurial work; in the latter, people favor routine production, such as working for a state factory. In societies where trust is low and corruption is part of business as usual, people tend to believe that entrepreneurs will do more harm than government, so they favor additional regulation.