MONEY BURNING AND MULTIPLE EQUILIBRIA IN BARGAINING

This paper synthesizes recent work on delay and multiple equilibria in complete information Rubinstein bargaining. We 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. Our results show that the uniqueness and efficiency properties of the subgame perfect equilibrium of Rubinstein bargaining are vulnerable to players' ability to burn money. (C) 1994 Academic Press, Inc.