Negotiating Through an Agent

Abstract

Agents often bargain on behalf of their principals. In many common negotiating situations, especially where ex post ratification of the agent's agreement is required (e.g., union contracts, treaties), an agent faces inherent uncertainty about the terms that are minimally acceptable to the principal (the principal's “reservation price”). In fact, the agent's entire payoff function may be uncertain. We study bargaining behavior in these circumstances and show that the agent's minimum demands unambiguously increase with increases in uncertainty about the principal's reservation price, with increases in uncertainty about the payoff function, and with increases in the agent's degree of risk aversion. We then fashion these results about an individual agent's behavior into conclusions about the difficulty of reaching agreement in the overall negotiations. Using Axelrod's measure of the “conflict of interest” in a game, optimal insistence prices in a one-shot bargaining situation, and two equilibrium concepts in a common commitment game, we show that the inherent uncertainty of agency bargaining can frequently make disagreement more likely.