Red tape, incentive bribe and the provision of subsidy

An agent entitled to receive subsidy bribes the government official to reduce red tape from an exogenous level. The agent has private information on his cost from red tape. Which type of the agent, high or low cost, would be able to exploit the private information depends on the level of the exogenous red tape. At low levels of the exogenous red tape, it is the high type, and at high levels it is the low type that earns information rent. At moderate red tape, neither may earn rents. With greater red tape, the agent's profit can increase. (C) 2001 Published by Elsevier Science B,V.