Advances in Negotiation Theory: Bargaining, Coalitions and Fairness

Bargaining is ubiquitous in real-life. It is a major dimension of political and business activities. It appears at the international level, when governments negotiate on matters ranging from economic issues (such as the removal of trade barriers), to global security (such as fighting against terrorism) to environmental and related issues (e.g. climate change control). What factors determine the outcome of negotiations such as those mentioned above? What strategies can help reach an agreement? How should the parties involved divide the gains from cooperation? With whom will one make alliances? This paper addresses these questions by focusing on a non-cooperative approach to negotiations, which is particularly relevant for the study of international negotiations. By reviewing noncooperative bargaining theory, non-cooperative coalition theory, and the theory of fair division, this paper will try to identify the connection among these different facets of the same problem in an attempt to facilitate the progress towards a unified framework.Negotiation theory, Bragaining, Coalitions, Fairness, Agreements

Advances in negotiation theory : bargaining, coalitions, and fairness

Bargaining is ubiquitous in real life. It is a major dimension of political and business activities. It appears at the international level, when governments negotiate on matters ranging from economic issues (such as the removal of trade barriers), to global security (such as fighting against terrorism) to environmental and related issues (such as climate change control). What factors determinethe outcomes of such negotiations? What strategies can help reach an agreement? How should the parties involved divide the gains from cooperation? With whom will one make alliances? The authors address these questions by focusing on a noncooperative approach to negotiations, which is particularly relevant for the study of international negotiations. By reviewing noncooperative bargaining theory, noncooperative coalition theory, and the theory of fair division, they try to identify the connections among these different facets of the same problem in an attempt to facilitate progress toward a unified framework.Economic Theory&Research,Social Protections&Assistance,Environmental Economics&Policies,Scientific Research&Science Parks,Science Education

Advances in Negotiation Theory: Bargaining, Coalitions and Fairness

Bargaining is ubiquitous in real-life. It is a major dimension of political and business activities. It appears at the international level, when governments negotiate on matters ranging from economic issues (such as the removal of trade barriers), to global security (such as fighting against terrorism) to environmental and related issues (e.g. climate change control). What factors determine the outcome of negotiations such as those mentioned above? What strategies can help reach an agreement? How should the parties involved divide the gains from cooperation? With whom will one make alliances? This paper addresses these questions by focusing on a non-cooperative approach to negotiations, which is particularly relevant for the study of international negotiations. By reviewing non-cooperative bargaining theory, non-cooperative coalition theory, and the theory of fair division, this paper will try to identify the connection among these different facets of the same problem in an attempt to facilitate the progress towards a unified framework.Negotiation theory, Bargaining, Coalitions, Fairness, Agreements

Information Networks and Worker Recruitment

This paper studies experimentally how the existence of social information networks affects the ways in which firms recruit new personnel. Through such networks firms learn about prospective employees' performance in previous jobs. Assuming individualistic preferences social networks are predicted not to affect overall labor market behavior, while with social preferences the prediction is that when bilaterally negotiated: (i) wages will be higher and (ii) that workers in jobs with incomplete contracts will respond with higher effort. Our experimental results are consistent with the social preferences view, both for the case of excess demand and excess supply of labor. In particular, the presence of information networks leads to more efficient allocations.Labor Markets, Information Networks, Worker Recruitment, Indirect reciprocity, Experiments

Bargaining with Incomplete Information

A central question in economics is understanding the difficulties that parties have in reaching mutually beneficial agreements. Informational differences provide an appealing explanation for bargaining inefficiencies. This chapter provides an overview of the theoretical and empirical literature on bargaining with incomplete information. The chapter begins with an analysis of bargaining within a mechanism design framework. A modern development is provided of the classic result that, given two parties with independent private valuations, ex post efficiency is attainable if and only if it is common knowledge that gains from trade exist. The classic problems of efficient trade with one-sided incomplete information but interdependent valuations, and of efficiently dissolving a partnership with two-sided incomplete information, are also reviewed using mechanism design. The chapter then proceeds to study bargaining where the parties sequentially exchange offers. Under one-sided incomplete information, it considers sequential bargaining between a seller with a known valuation and a buyer with a private valuation. When there is a "gap" between the seller's valuation and the support of buyer valuations, the seller-offer game has essentially a unique sequential equilibrium. This equilibrium exhibits the following properties: it is stationary, trade occurs in finite time, and the price is favorable to the informed party (the Coase Conjecture). The alternating-offer game exhibits similar properties, when a refinement of sequential equilibrium is applied. However, in the case of "no gap" between the seller's valuation and the support of buyer valuations, the bargaining does not conclude with probability one after any finite number of periods, and it does not follow that sequential equilibria need be stationary. If stationarity is nevertheless assumed, then the results parallel those for the "gap" case. However, if stationarity is not assumed, then instead a folk theorem obtains, so substantial delay is possible and the uninformed party may receive substantial surplus. The chapter also briefly sketches results for sequential bargaining with two-sided incomplete information. Finally, it reviews the empirical evidence on strategic bargaining with private information by focusing on one of the most prominent examples of bargaining: union contract negotiations.Bargaining; Delay; Incomplete Information

Inter State Water Disputes in India: Institutions and Policies

In this paper we argue that Indian water-dispute settlement mechanisms are ambiguous and opaque. We distinguish analytically between situations where cooperation is possible, and situations of pure conflict, where the initial allocation of rights is at stake. In the latter case, a search for a negotiated solution may be futile, and quick movement to arbitration or adjudication may be more efficient. However, in India, the process is slow, and effectively binding arbitration does not exist. The entanglement of inter-state water disputes with more general center- state conflicts and political issues compounds problems. We argue that these impacts can be reduced by a more efficient design of mechanisms for negotiating inter-state water disputes: some of the possibilities include a national water commission independent of daily political pressures, a federated structure incorporating river basin authorities and water user associations, and fixed time periods for negotiation and adjudication.

Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate Coasean Trade

It is a common argument in law and economics that divided ownership can create or exacerbate strategic behavior. For instance, when several persons own the land designated for a proposed stadium, individual sellers may hold out for a disproportionate share of the gains from trade. Alternatively, when building a public library would benefit multiple residents, individual buyers may free ride on the willingness of others to pay for its construction. Such transaction costs of collective action fall under a variety of analytic rubrics, including the tragedy of the commons and the theory of public goods. Nonetheless, each example of market failure shares a common attribute: The division of a single legal entitlement, or of rivalrous entitlements, among joint sellers or joint buyers may prevent socially efficient transactions, particularly when the parties possess private information about their preferences. This Article explores a different way of dividing an entitlement. Rather than analyzing divisions among buyers or among sellers, we consider the effects of splitting an entitlement between the two groups. Our core insight is Solomonic in character: Dividing a legal entitlement between rivalrous users can facilitate efficient trade. More specifically, we show that when two parties have private information about how much they value an entitlement, endowing each party with a partial claim to the entitlement can reduce the incentive to behave strategically during bargaining, thereby enhancing economic efficiency. Private information is a particularly pernicious form of transaction cost, especially in legal contexts where, for procedural or other reasons, parties must negotiate within thin markets. In such contexts, self-interested bargainers have a strong incentive to misrepresent their private valuations so as to capture a larger share of the bargaining pie. These incentives often lead to predictable opportunistic strategies: Sellers tend to overstate the value they place on the bargained-for item, while buyers tend to understate their desire to purchase it. As a result of such strategic behavior, the parties may fail to detect and exploit a mutually beneficial trade, and even when they can it is usually after considerable and costly delay. In this Article, we argue that divided entitlements can facilitate trade by inducing claim holders to reveal more information than they would under an undivided entitlement regime. Owners of divided, or Solomonic, entitlements must bargain more forthrightly than owners of undivided entitlements, because the entitlement division obscures the titular boundary between buyer\u22 and seller. More precisely, endowing each bargainer with a share of the underlying entitlement creates the possibility of two different types of Coasean trade: A bargainer might buy the other party\u27s claim, or, alternatively, she might sell her own. During negotiation, each party is likely to be uncertain about whether she will ultimately emerge as a seller or a buyer. This strategic identity crisis can strongly mitigate each party\u27s incentive to misrepresent her respective valuation; each party must balance countervailing interests in shading up her valuation, as one would qua seller, and shading down her valuation, as one would qua buyer. This form of rational ambivalence, we argue, can lead the bargainers to represent their valuations more truthfully

Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate Coasean Trade

It is a common argument in law and economics that divided ownership can create or exacerbate strategic behavior. For instance, when several persons own the land designated for a proposed stadium, individual sellers may hold out for a disproportionate share of the gains from trade. Alternatively, when building a public library would benefit multiple residents, individual buyers may free ride on the willingness of others to pay for its construction. Such transaction costs of collective action fall under a variety of analytic rubrics, including the tragedy of the commons and the theory of public goods. Nonetheless, each example of market failure shares a common attribute: The division of a single legal entitlement, or of rivalrous entitlements, among joint sellers or joint buyers may prevent socially efficient transactions, particularly when the parties possess private information about their preferences. This Article explores a different way of dividing an entitlement. Rather than analyzing divisions among buyers or among sellers, we consider the effects of splitting an entitlement between the two groups. Our core insight is Solomonic in character: Dividing a legal entitlement between rivalrous users can facilitate efficient trade. More specifically, we show that when two parties have private information about how much they value an entitlement, endowing each party with a partial claim to the entitlement can reduce the incentive to behave strategically during bargaining, thereby enhancing economic efficiency. Private information is a particularly pernicious form of transaction cost, especially in legal contexts where, for procedural or other reasons, parties must negotiate within thin markets. In such contexts, self-interested bargainers have a strong incentive to misrepresent their private valuations so as to capture a larger share of the bargaining pie. These incentives often lead to predictable opportunistic strategies: Sellers tend to overstate the value they place on the bargained-for item, while buyers tend to understate their desire to purchase it. As a result of such strategic behavior, the parties may fail to detect and exploit a mutually beneficial trade, and even when they can it is usually after considerable and costly delay. In this Article, we argue that divided entitlements can facilitate trade by inducing claim holders to reveal more information than they would under an undivided entitlement regime. Owners of divided, or Solomonic, entitlements must bargain more forthrightly than owners of undivided entitlements, because the entitlement division obscures the titular boundary between buyer\u22 and seller. More precisely, endowing each bargainer with a share of the underlying entitlement creates the possibility of two different types of Coasean trade: A bargainer might buy the other party\u27s claim, or, alternatively, she might sell her own. During negotiation, each party is likely to be uncertain about whether she will ultimately emerge as a seller or a buyer. This strategic identity crisis can strongly mitigate each party\u27s incentive to misrepresent her respective valuation; each party must balance countervailing interests in shading up her valuation, as one would qua seller, and shading down her valuation, as one would qua buyer. This form of rational ambivalence, we argue, can lead the bargainers to represent their valuations more truthfully

Jackpot Justice: The Value of Inefficient Litigation

Litigation seems to be a Pareto-ineffcient outcome of pretrial bargaining; however, this paper shows that litigation can be the outcome of rational behavior by a litigant and her attorney. If the attorney has more information than his client concerning the characteristics of the lawsuit, the client can use litigation as a way of extracting information. I show that, counterintuitively, litigation will occur only when the plaintiff is pessimistic about her prospects at trial. Even if the plaintiff could obtain a higher payoff from bargaining than from litigation-without-bargaining, bargaining may not occur in equilibrium. The plaintiff is more likely to sue if she is more pessimistic about winning damage in court and if litigation is more risky. Litigation is less likely to occur if the plaintiff receives third party financing for litigation