For details of the model see handwritten diagramatic notes. ... in the world of this model, red tape does not arise because bureaucrats lack incentives. In fact, there is most red tape precisely where the incentives are strongest ... This is less paradoxical than it sounds: it is an example of the important observation made in Holmstrom and Milgrom [1991] that increasing the the incentives along a dimension of performance that is measurable ... will distort incentivees along a nonmeasurable dimension ... In other words, the problem is not that the bureaucrat lacks incentives but that there is a lack of balance between his incentives along different dimensions.

Issues

  1. In the first simple model we see most red-tape where we have welfare oriented government and money-oriented bureaucrat. This derives in the model given from an incentive compatibility constraint for the bureaucrat in meeting its government mandated performance target. I don't think this is the reason red-tape gets generated (i.e. as a sorting mechanism). In my view main reasons for seeing lot of red tape:
    1. rent extraction mechanism for the bureaucrat. Bureaucrat can't charge prices or prices are observed but red-tape can be used as a way of getting bribes/kickbacks
    2. Information problems gone crazy (this applies to developed societies). Classic example is CRB police checks in the UK