Money burning in the theory of delegation

Manuel Amador and Kyle Bagwell

Games and Economic Behavior, 2020, vol. 121, issue C, 382-412

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.

Keywords: Optimal delegation; Money burning (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:121:y:2020:i:c:p:382-412

DOI: 10.1016/j.geb.2020.02.010

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