Bureaucracy Intermediaries, Corruption and Red Tape

Intermediaries helping individuals and rms with the government bureaucracy are common in developing countries. Although such bureaucracy intermediaries are, anecdotally,linked with corruption and welfare losses, few formal analyses exist. In our model, a government license can benet individuals. We study individuals net gain when acquiring the license through the regular procedure, through bribing or through intermediaries. For a given procedure, individuals using intermediaries are better offthan if intermediaries and corruption had not existed. Intermediaries grease the wheels. We then study incentives of corrupt bureaucrats to create red tape. When free to choose levels of red tape, bureaucrats implement more red tape and individuals are unambiguously worse off in a setting with intermediaries than with direct corruption only. Intermediaries can thus improve access to the bureaucracy, but also strengthen incentives to create red tape - a potential explanation ! why license procedures tend to be long in developing countries.