Cheap Talk and Burned Money

Abstract

We augment the standard Crawford-Sobel (1982, Econometrica50, 1431-1451) model of cheap talk communication by allowing the informed party to use both costless and costly messages. The issues on which we focus are the consequences for cheap talk signaling of the option to burn money and the circumstances under which both cheap talk and burned money are used to signal information. Journal of Economic Literature Classification Numbers: C7, D8. © 2000 Academic Press.