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Money burning and multiplicity in bargaining

Author: Zemsky, Peter B. ; Avery, ChristopherINSEAD Area: StrategyIn: Games and Economic Behavior, September 1994 Language: EnglishDescription: p. 154-168.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: This paper synthesizes recent work on delay and multiple equilibria in complete information Rubinstein bargaining. The authors identify a general principle, "money burning," underlying prior results and develop a general model of the phenomena. Money burning is a threat by one player to destroy surplus, which can serve to enhance that player's bargaining power if it is credible. Their results show that the uniqueness and efficiency properties of the subgame perfect equilibrium of Rubinstein bargaining are vulnerable to players' ability to burn money.
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This paper synthesizes recent work on delay and multiple equilibria in complete information Rubinstein bargaining. The authors identify a general principle, "money burning," underlying prior results and develop a general model of the phenomena. Money burning is a threat by one player to destroy surplus, which can serve to enhance that player's bargaining power if it is credible. Their results show that the uniqueness and efficiency properties of the subgame perfect equilibrium of Rubinstein bargaining are vulnerable to players' ability to burn money.

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