Screening through Red Tape and Determinants of Bribes

I use the standard screening model to study the relationship between bribes and red tape. I argue that bribe-taking bureaucrats extract bribes by exploiting differences in firms' marginal costs of red tape and offer a menu of bribes and paperwork processing times, where a larger bribe is associated with a shorter paperwork processing time and a smaller bribe is associated with a longer paperwork processing time.The estimation of the screening model using data on self-reported bribes and red tape suggests that the marginal cost of red tape for negative-profit firms is US$ 14 per day and the marginal cost of red tape for positive-profit firms varies between US$ 52 and US$ 324. The predictions of the screening model hold only for firms whose managers or owners have no friends or relatives among the bureaucracy