The paper by Philippe Aghion, Yann Algan, Pierre Cahuc, and Andrei Shleifer explores the relationship between government regulation and social capital across countries. They document a strong negative correlation between government regulation and social capital, measured through various indicators such as trust in others, corporations, and political institutions, as well as measures of regulation in product markets, labor markets, and judicial procedures. The authors present a model that explains this correlation, where distrust creates public demand for regulation, which in turn discourages social capital accumulation, leading to multiple equilibria. The model predicts that individuals in low-trust countries will want more government intervention, even when they recognize the government's corruption. The authors test these predictions using country- and individual-level data on social capital and beliefs about government's role, as well as data on changes in beliefs and trust during the transition from socialism. The results support the model's predictions, showing that distrust fuels support for government control over the economy, even when people know the government is corrupt and ineffective. The authors also examine the effect of regulation on distrust, finding that exogenous liberalization in low-trust societies can lead to increased disorder, corruption, and a demand for re-regulation.The paper by Philippe Aghion, Yann Algan, Pierre Cahuc, and Andrei Shleifer explores the relationship between government regulation and social capital across countries. They document a strong negative correlation between government regulation and social capital, measured through various indicators such as trust in others, corporations, and political institutions, as well as measures of regulation in product markets, labor markets, and judicial procedures. The authors present a model that explains this correlation, where distrust creates public demand for regulation, which in turn discourages social capital accumulation, leading to multiple equilibria. The model predicts that individuals in low-trust countries will want more government intervention, even when they recognize the government's corruption. The authors test these predictions using country- and individual-level data on social capital and beliefs about government's role, as well as data on changes in beliefs and trust during the transition from socialism. The results support the model's predictions, showing that distrust fuels support for government control over the economy, even when people know the government is corrupt and ineffective. The authors also examine the effect of regulation on distrust, finding that exogenous liberalization in low-trust societies can lead to increased disorder, corruption, and a demand for re-regulation.