Intermediaries helping individuals and firms 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. <p> In our model, a government license can benefit...</p>

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....

In a typical developing country, the majority of small firms are informal and entry costs into formality are high. This paper is motivated by these two observations. It asks the question of what can be expected in terms of firm investment, growth and formalization in such a setting. It also...