Money Burning Improves Mediated Communication

51 Pages Posted: 17 Jul 2023 Last revised: 29 Nov 2024

See all articles by Yi Liu

Yi Liu

Tsinghua University

Yang Yu

Tsinghua University

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

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

Yi Liu (Contact Author)

Tsinghua University ( email )

Beijing, 100084
China

Yang Yu

Tsinghua University ( email )

Beijing, 100084
China

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