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Intermediaries that assist 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. We introduce a model in which a government license can benefit individuals. We study the net license gain when individuals get the license through the regular licensing procedure, through bribing or through intermediaries. For a given procedure, individuals using intermediaries are better off than if intermediaries and corruption had not existed. Then, we study the incentives of corrupt bureaucrats to create 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 the incentives to create red tape – a potential explanation why licensing procedures tend to be long in developing countries.
Anders Fredriksson (Sat,) studied this question.