Dec 12, 2013

Trust and the Growth of Government

A feature of post-World War II economic history is the growth in government, paradoxically accompanied by a decline in trust of government. How does a mistrusted institution continue to grow? We utilize key findings in the economics, behavioral, and psychology literatures to develop a model to understand how this can occur, as well as illuminating the interconnections between government, rent seeking, productivity, and trust. When an increase in government powers leads to more rent-seeking activity, mistrust of government is engendered, which lowers productivity and sows the seeds for more rent seeking and further government growth. Also, a version of our model has a “trust trap,” illustrating how an economy may become stuck in a low trust/high rent seeking/big government equilibrium.
That is from a paper by John E. Garen & Jeff R. Clark.

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