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Money burning in the theory of delegation

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  • Amador, Manuel
  • Bagwell, Kyle

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.

Suggested Citation

  • Amador, Manuel & Bagwell, Kyle, 2020. "Money burning in the theory of delegation," Games and Economic Behavior, Elsevier, vol. 121(C), pages 382-412.
    • Handle: RePEc:eee:gamebe:v:121:y:2020:i:c:p:382-412
    DOI: 10.1016/j.geb.2020.02.010
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    References listed on IDEAS

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    Cited by:

    1. Alex Frankel, 2021. "Selecting Applicants," Econometrica, Econometric Society, vol. 89(2), pages 615-645, March.
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    3. Arve, Malin & Honryo, Takakazu, 2022. "Wasteful procedures?," Journal of Economics and Business, Elsevier, vol. 122(C).
    4. Saori Chiba & Kaiwen Leong, 2023. "Countervailing Conflicts of Interest in Delegation Games," Games, MDPI, vol. 14(6), pages 1-20, November.

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    Keywords

    Optimal delegation; Money burning;

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