Abstract
We study the allocation of driver's licenses in India by randomly assigning applicants to one of three groups: bonus (offered a bonus for obtaining a license quickly), lesson (offered free driving lessons), or comparison. Both the bonus and lesson groups are more likely to obtain licenses. However, bonus group members are more likely to make extralegal payments and to obtain licenses without knowing how to drive. All extralegal payments happen through private intermediaries (“agents”). An audit study of agents reveals that they can circumvent procedures such as the driving test. Overall, our results support the view that corruption does not merely reflect transfers from citizens to bureaucrats but distorts allocation.