Trust, Perceptions of Corruption, and Demand for Regulation: Evidence from Post-Socialist Countries

40 Pages Posted: 23 May 2011 Last revised: 4 Oct 2011

Valentina P. Dimitrova-Grajzl

Virginia Military Institute

Peter Grajzl

Washington and Lee University - Department of Economics; CESifo

A. Joseph Guse

Washington and Lee University - Williams School of Commerce, Economics, and Politics

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Date Written: August 22, 2011

Abstract

While the tradeoff between market failure and government failure has been explored both theoretically and in practical policy design, the question of whether this trade-off appears in the calculus of citizens' demands for government regulation remains underexplored. We first clarify the channels through which concerns for market failure, as proxied by trust in market participants, and concerns for government failure, as proxied by perceptions of corruption, jointly affect individuals' demand for government regulation. We then investigate these effects empirically, using data from post-socialist countries. Our analysis confirms the previously established result that trust has a negative effect on demand for regulation. Perceived corruption, however, affects demand for regulation primarily via a negative interaction effect with trust. Our findings suggests that, in post-socialist countries, both concerns for market failure and concerns for government failure are indeed in citizens' minds and that concerns about government failure are at least as important as the desire to punish the 'unpleasant capitalists' hypothesized by Di Tella and MacCulloch (2009).

Keywords: Demand for regulation, trust, perceptions of corruption, post-socialist countries

JEL Classification: K20, L51, P30, Z13

Suggested Citation

Dimitrova-Grajzl, Valentina P. and Grajzl, Peter and Guse, A. Joseph, Trust, Perceptions of Corruption, and Demand for Regulation: Evidence from Post-Socialist Countries (August 22, 2011). Available at SSRN: https://ssrn.com/abstract=1849224 or http://dx.doi.org/10.2139/ssrn.1849224

Valentina P. Dimitrova-Grajzl

Virginia Military Institute ( email )

Department of Economics and Business
Scott Shipp Hall
Lexington, VA 24450
United States

Peter Grajzl (Contact Author)

Washington and Lee University - Department of Economics ( email )

Lexington, VA 24450
United States

HOME PAGE: http://home.wlu.edu/~grajzlp/

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

A. Joseph Guse

Washington and Lee University - Williams School of Commerce, Economics, and Politics ( email )

Lexington, VA 24450
United States

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