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Amador, Manuel and Kyle Bagwell (2020): “Money burning in the theory of delegation,” Games and Economic Behavior, 112: 382-412.


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.


	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 = {https://www.sciencedirect.com/science/article/pii/S089982562030035X},
	author = {Manuel Amador and Kyle Bagwell},
	keywords = {Optimal delegation, Money burning}