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Citation

Amador, Manuel and Kyle Bagwell (2020): “Money burning in the theory of delegation,” Games and Economic Behavior, 112: 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.

BibTeX

@article{AMADOR2020382,
    title = "Money burning in the theory of delegation",
    journal = "Games and Economic Behavior",
    volume = "121",
    pages = "382-412",
    year = "2020",
    issn = "0899-8256",
    doi = "https://doi.org/10.1016/j.geb.2020.02.010",
    url = "http://www.sciencedirect.com/science/article/pii/S089982562030035X",
    author = "Manuel Amador and Kyle Bagwell",
    keywords = "Optimal delegation, Money burning",
    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."
}