Varieties of Regulatory Regimes and their Effect on Public Trust in Market Actors

Abstract

It is widely argued that command-and-control regulation is a burdensome, inefficient, and illiberal form of governance. In recent decades, many efforts have been made to find alternatives that could protect and enhance public interest in a less costly, less legalistic, less punitive, and less paternalistic manner. These alternatives include various instruments under the umbrella of smart and self-regulatory regimes. However, it is still unclear how such alternatives affect citizens' trust in regulated market actors. Using two experimental surveys (n=1195), we examine the extent to which nine different regulatory designs affect citizens' willingness to trust a hypothetical Fintech company. The results show that citizens' trust increases with the existence of a state regulator and decreases with self-regulatory regimes and deregulation. We also find an increase in trust when the state regulator relies on pledges rather than strict oversight, provided that the regulator is perceived as trustworthy. These results suggest that governmental command-and-control regulation may be more beneficial to both the public and firms than is often assumed, as more government regulation may mean more trust in the market.

Keywords: regulation, trust in market actors, experimental survey, self-regulation, enhanced self-regulation