Abstract
Austen-Smith and Banks [Cheap talk and burned money, J. Econ. Theory 91(1) (2000) 1–16] study how money burning can expand the set of pure cheap talk equilibria of Crawford and Sobel [Strategic information transmission, Econometrica 50(6) (1982) 1431–1451]. I identify an error in the main Theorem of Austen-Smith and Banks, and provide a variant that preserves some of the important implications. I also prove that cheap talk can be influential with money burning if and only if it can be influential without money burning. This strengthens a result of Austen-Smith and Banks, but uncovers other errors in their analysis. Finally, an open conjecture of theirs is proved correct.
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