Abstract
Austen-Smith and Banks (Journal of Economic Theory, 2000) study how money burning can expand the set of pure cheap talk equilibria of Crawford and Sobel (Econometrica, 1982). This note identifies an error in the main Theorem of Austen-Smith and Banks, and provides a variant that preserves some of the important implications. I also prove that generically, cheap talk can be influential in the presence of money burning if and only if it can be influential without money burning. This considerably strengthens a result of Austen-Smith and Banks, but simultaneously uncovers other errors in their analysis. Finally, their conjecture on the continuity of the equilibrium set as the upper bound on burned money shrinks to 0 is proved correct.
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