Money Burning Improves Mediated Communication
51 Pages Posted: 17 Jul 2023 Last revised: 29 Nov 2024
Date Written: July 9, 2023
Abstract
This paper explores the problem of mediated communication enhanced by money-burning tactics for commitment power. In our model, the sender has state-independent preferences and can design a communication mechanism that both transmits messages and burns money. We characterize the sender's maximum equilibrium payoff, which has clear geometric interpretations and is linked to two types of robust Bayesian persuasion. We demonstrate that, generically, the money-burning tactic \emph{strictly} improves the sender's payoff for almost all prior beliefs where commitment is valuable for the sender. Furthermore, our communication model directly applies to Web 3.0 communities, clarifying the commitment value within these contexts.
Keywords: Mediated Communication, Money Burning, Mechanism Design, Cheap Talk, Bayesian Persuasion, Commitment
JEL Classification: D82, D83.
Suggested Citation: Suggested Citation
Liu, Yi and Yu, Yang, Money Burning Improves Mediated Communication (July 9, 2023). Available at SSRN: https://ssrn.com/abstract=4504712 or http://dx.doi.org/10.2139/ssrn.4504712
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