Varieties of regulatory regimes and their effect on citizens’ trust in firms

ABSTRACT

The regulation of market activity has been largely dominated by governmental command-and-control regulatory design (C&C), which was seen as the safest way to protect the public from potential harm by firms. In recent years, in an effort to move to more relaxed and less burdensome regulation, alternative regulatory tools have been developed, tools that rely on firms or other private actors in the various stages of regulation (self, or smart, regulation). Since these alternatives present a reduction in the extent to which the government regulates markets, they could have a negative impact on citizens’ trust in firms and willingness to use them, especially when it comes to new technologies that could pose a risk to users. Using two experimental surveys (n = 1,195), we examine the extent to which different regulatory designs affect citizens’ willingness to trust a firm in the field of financial technologies (Fintech). The results show that trust in the firm decreases with alternatives to traditional state regulation. However, when trust in the regulator is high, then trust in the regulated firm increases even when an altentaive to C&C is introduced and the regulator relies on pledges, suggesting that the path to relieving regulatory burden lies in increasing the trustworthiness of public regulators.

KEYWORDS:

• Enhanced self-regulation
• experimental survey
• regulation
• self-regulation
• trust in market actors

Acknowledgments

The authors would like to thank the panel participants in the ComplianceNet, IRSPM, and Law and Society conferences for their insightful comments. A special thank you to Stephan Grimmelikhuijsen, Sharon Gilad, Elyakim Kislev, Nissim Cohen, and Eyal Peer and the Israel Democracy Institute researchers for their feedback on earlier drafts of this work. We thank the Israel Democracy Institute for funding the surveys. Finally, we thank the anonymous reviewers for their constructive comments and the editors for helpful guidance in the reviewing process.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Statistical replication materials and data

Data for this article can be accessed at https://osf.io/49agh/.

Additional information

Funding

This research has been funded by the Israel Science Foundation [grant number: 270/2021], the European Research Council (ERC) advanced grant under grant number 101054656 (VCOMP) and the European Union Horizon 2020 Framework Programme under grant agreement No 870722 (TiGRE).

Notes on contributors

Libby Maman

Libby Maman is a post-doctoral researcher at the Institut Barcelona d’Estudis Internacionals (IBEI).

Yuval Feldman

Yuval Feldman is the Mori Lazarof professor of law and associate dean for research at Bar-Ilan University Faculty of Law and a senior fellow at the Israel Democracy Institute.

David Levi-Faur

David Levi-Faur is a professor at the Political Science Department and the Federmann School of Public Policy and Government at the Hebrew University of Jerusalem.