Money burning in the theory of delegation

Manuel Amador, Kyle Bagwell

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

This paper uses a Lagrangian approach to provide sufficient conditions under which money burning expenditures are used in an optimal delegation contract. For comparison, we also establish simple sufficient conditions for the optimality of a cap allocation under a restricted set of preferences for a benchmark setting in which money burning is not allowed. We also apply our findings to a model of cooperation and to a model with quadratic preferences and families of distribution functions. In addition, we provide several comparative statics results.

Original languageEnglish (US)
Pages (from-to)382-412
Number of pages31
JournalGames and Economic Behavior
Volume121
DOIs
StatePublished - May 2020

Bibliographical note

Funding Information:
Some of the results in this paper were originally circulated in an earlier version of Amador and Bagwell (2013). We thank Marco Battaglini, Alex Frankel, Muriel Niederle and anonymous referees for very helpful comments. Manuel Amador is grateful for financial support from the NSF under grant number 0952816.

Publisher Copyright:
© 2020 Elsevier Inc.

Keywords

  • Money burning
  • Optimal delegation

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