Money Burning Improves Mediated Communication

Abstract

Can wasteful money burning improve strategic communication? We show that it can, but only with intermediate commitment. In mediated communication with report-contingent burning, the mediator can use costly messages to discipline deviations and make persuasive messages credible. Under transparent motives, increasing the burning budget strictly raises the Sender's payoff once the budget is large enough, unless mediated communication with money burning collapses to cheap talk. With an unbounded budget, the value equals a robust Bayesian persuasion payoff, or equivalently the payoff of a cautious Sender. The framework clarifies commitment through smart contracts and Web 3.0 mediation.