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

It is widely argued that states’ Command-and-Control regulation is a burdensome, inefficient, ineffective and illiberal mechanism for regulating market actors. In recent decades, many efforts have been made to find alternatives regimes that could ensure the public interest in a less costly, less legalistic and punitive and less centralized manner. However, it is still unclear how such alternative and “smarter” regimes affect citizens' trust in market actors. Using two experimental surveys with representative samples of the Israeli population (n=1195), we examine the extent to which nine different regulatory regimes influence citizens' willingness to trust a hypothetical Fintech company that requires clients to trust it with their private financial data. The results show that public trust in market entities increases with the existence of a state regulator and decreases under self-regulatory regimes. Hybrid regimes in which a state regulator relies on pledges instead of strict oversight can increase trust, provided that the regulator is perceived as trustworthy. It follows that governmental C&C regulation can be beneficial to both the public and firms and that more regulation may mean more trust in the market.