Bargaining Situation Research Articles

Bargaining in institutionalized settings: The case of Turkish reforms

By analyzing the case of a bargaining situation in an institutionalized setting, which derives from Turkey’s reform process in a sensitive issue area ( civil—military relations), this study assesses the explanatory power of competing models of bargaining: rational, normative, and discursive/argumentative .The bargaining outcome in this case was puzzling because despite the existence of a strongly pro-status quo veto player (i.e. the military), the bargaining processes led to a new status quo.This study shows that the veto player simply failed to prevent a shift to a new status quo because such an action would do substantial damage to the military’s ideational concerns (normative entrapment). The rational model remains under-socialized, while the discursive model is over-socialized in analyzing this bargaining situation. Although the normative model sheds more light on this puzzling outcome, a synthesis between normative and rational models would provide us with much better insight.

Can Nervous Nelly Negotiate? How Anxiety Causes Negotiators to Exit Early and Make Steep Concessions

Across three studies, we demonstrate that anxiety is both commonly associated with negotiations and harmful to negotiator performance. In our experiments, we induced either low anxiety or high anxiety. Compared to negotiators experiencing low levels of anxiety, negotiators who experience high levels of anxiety make steeper concessions and exit bargaining situations earlier. The relationship between anxiety and negotiator behavior is moderated by negotiator self-efficacy; high self-efficacy mitigates the harmful effects of anxiety.

Bargaining with nonanonymous disagreement: Monotonic rules

We analyze bargaining situations where the agents' payoffs from disagreement depend on who among them breaks down the negotiations. We model such problems as a superset of the standard domain of Nash [Nash, J.F., 1950. The bargaining problem. Econometrica 18, 155–162]. On our extended domain, we analyze the implications of two central properties which, on the Nash domain, are known to be incompatible: strong monotonicity [Kalai, E., 1977. Proportional solutions to bargaining situations: Interpersonal utility comparisons. Econometrica 45, 1623–1630] and scale invariance [Nash, J.F., 1950. The bargaining problem. Econometrica 18, 155–162]. We first show that a class of monotone path rules uniquely satisfy strong monotonicity, scale invariance, weak Pareto optimality, and “continuity”. We also show that dropping scale invariance from this list characterizes the whole class of monotone path rules. We then introduce a symmetric monotone path rule that we call the Cardinal Egalitarian rule and show that it is weakly Pareto optimal, strongly monotonic, scale invariant, symmetric and that it is the only rule to satisfy these properties on a class of two-agent problems.

Target Concessions in the Shadow of Intervention

Why do targets sometimes make concessions when third parties offer assistance? Both the extended deterrence and alliance literatures point to unreliable third parties to explain deterrence failure and target acquiescence. On the other hand, the alliance literature also suggests that third parties present a moral-hazard situation in which targets will behave less prudently when they have outside support. Without dismissing the importance of these dynamics, I demonstrate that targets will still make concessions when intervention is certain, and that interveners do not always embolden targets in crisis situations. Counterintuitively, interveners alter the bargaining situation, shifting the bargaining space so that conceding is more attractive than war for the target state. Instead of emboldening targets, third parties deter larger demands and produce settlement outcomes that reduce the burden on the target.

Distribution of surplus in sequential bargaining with endogenous recognition

I examine a sequential bargaining situation in which agents contest the right to propose an allocation. The contest can either take place at a pre-bargaining stage, yielding “persistent recognition” to propose, or recur throughout the bargaining, yielding “transitory recognition”. Equilibrium analysis reveals that surplus is distributed more unequally under persistent recognition; social cost is higher under persistent recognition if and only if it attracts a sufficient number of “active” bargainers; and individual’s incentive to propose under transitory recognition may actually increase in the number of agents, while this incentive always diminishes under persistent recognition.

Bargaining Power and Efficiency in Insurance Contracts

Insurance contracts are frequently modelled as principal–agent relationships. The purpose of this paper is to examine the interaction between differential bargaining power and the efficiency of insurance contracts. The analysis is undertaken in a framework of state-contingent production, which allows us to consider, as separate choices, the level of effort committed by the client and the riskiness of the equilibrium state-contingent production vector. Our central result is that, in the presence of hold-up problems, the exercise of monopoly power by insurers leads clients to undertake socially costly self-protection, leading to suboptimal levels of insurance. Clients can exploit information asymmetries to offset the bargaining power of the insurer, but this process is also socially costly. Hence, competitive markets for insurance will yield a Pareto-superior outcome to the constrained Pareto-optimum reached in markets where insurers have monopoly power. More generally, in a bargaining situation, an increase in the bargaining power of clients will increase social welfare.

Do People Make Strategic Moves? Experimental Evidence on Strategic Information Avoidance

The strategic commitment moves that game theory predicts players make may sometimes seem counter-intuitive. We therefore conducted an experiment to see if people make the predicted strategic move. The experiment uses a simple bargaining situation. A player can make a strategic move of committing to not seeing what another player will demand. Our data show that subjects do, but only after substantial time, learn to make the predicted strategic move. We find only weak evidence of physical timing effects.

From Havana to Miami: U.S. Cuba Policy as a Two-Level Game

or thirty years, Cuba was a focal point of the Cold War. Before the demise of the Soviet Union, Cuba's close ideological and military partnership with the communist superpower posed a challenge to U.S. foreign policy, especially in the Third World (see, e.g., Dominguez 1989). With the end of the Cold War, Cuba retrenched, ending its aid programs for foreign revolutionaries and regimes. Without the Soviet Union's sponsorship, Cuba could no longer afford the luxury of a global foreign policy exporting revolution. Instead, its diplomats focused on reorienting Cuba's international economic relations toward Latin America and Europe, building friendly relations with former adversaries. Ordinarily, such a massive shift in the international system would be expected to produce a significant change in U.S. policy, as it did in the cases of Russia, Eastern Europe, Angola, and even Vietnam. But U.S. policy toward Cuba changed hardly at all. That is an anomaly we endeavor to explain herein, using Robert D. Putnam's (1988) theory or metaphor of international bargaining as a two-level game. (For elaborations on Putnam's model, see Evans et al. 1993). The two-level game model also provides a coherent explanation of President Bill Clinton's handling of the 1994 Cuban refugee crisis and the 1996 shootdown of two small planes by Cuban fighters. Putnam argues that in any international bargaining situation, national leaders are actually involved in two negotiations simultaneously: the international negotiation (level 1), wherein the leader seeks to reach agreement with other international actors; and a domestic negotiation (level 2), in which the national leader must persuade his domestic constituency to accept (ratify) the level 1 agreement. For leaders, the problem is that rational moves in the level 1 game may prove impolitic at level 2, or vice versa. The set of all possible agreements that domestic constituents will ratify is called the level 2 win-set. To achieve a successful agreement, the leader must locate the intersection, if any, between his constituency's winset and what the other level 1 negotiators will accept (that is, the level 1 win-set). The negotiation is complex because each negotiator is playing a similar two-level game. Putnam's contribution lies in his emphasis on the interactive nature of the international and domestic processes.l

Alternative damage rules and probabilistic intellectual property rights: Unjust enrichment, lost profits, and reasonable royalty remedies

This paper investigates how alternative damage rules in patent infringement cases shape competition when intellectual property rights are probabilistic. More specifically, I develop a simple model of oligopolistic competition to compare two main liability doctrines that have been used in the U.S. to assess infringement damages – the unjust enrichment rule and the lost profit rule. I show that the lost profit rule provides more protection to the patent holder than the unjust enrichment rule if the patent holder and infringer are equally efficient. When the lost profits from the infringement cannot be proved, the court accepts a “reasonable royalty rate” that would have been negotiated in a hypothetical bargaining situation as an alternative measure of damage. However, I point out that the concept of “reasonable” royalty rates lacks logical consistency when intellectual property rights are probabilistic.

How to Play the Ultimatum Game: An Engineering Approach to Metanormativity

The ultimatum game is a simple bargaining situation where the behavior of people frequently contradicts the optimal strategy according to classical game theory. Thus, according to many scholars, the commonly observed behavior should be considered irrational. We argue that this putative irrationality stems from a wrong conception of metanormativity (the study of norms about the establishment of norms). After discussing different metanormative conceptions, we defend a Quinean, naturalistic approach to the evaluation of norms. After reviewing empirical literature on the ultimatum game, we argue that the common behavior in the ultimatum game is rational and justified. We therefore suggest that the norms of economic rationality should be amended.

Existence and efficiency of a stationary subgame-perfect equilibrium in coalitional bargaining models with nonsuperadditive payoffs

We provide the existence theorem of stationary subgame-perfect equilibrium (SSPE) in a noncooperative coalitional bargaining game model with random proposers. Our model contains a bargaining situation where the coalitional game is nonsuperadditive. We also provide a necessary and sufficient condition for the existence of a pure-strategy SSPE satisfying the efficiency property when the discount factor is close to one. Furthermore, we provide examples where the delay in agreement occurs, even in a random-proposers model, when the game is nonsuperadditive.

EMOTLAB: Software for studying emotional signaling in economic bargaining games

EMOTLAB software creates a virtual social environment in which individuals interact via computer with a virtual interaction partner in a series of economic bargaining games. The virtual partner appears on the participant's computer screen as a digital image (e.g., video or picture file) during each trial. A key feature of EMOTLAB software is its ability to control both the strategic behavior and the emotion signaling behavior (e.g., anger vs. embarrassment) of the virtual interaction partner. By simply editing a series of text files that control the subroutines governing the different features of the experiment (payoff structure, number of trials, etc.), EMOTLAB can generate an essentially infinite number of different social bargaining situations in which participants earn monetary payoffs contingent upon their decisions. This paper provides an overview of this software and how one can edit various subroutines to generate a typical experimental session in which research participants encounter a virtual interaction partner who displays different emotional signals.

Safeguarding Specific Investments in Real Estate Purchases

This paper deals with real estate sale contracts between private actors. During contracting which proceeds incrementally, parties cannot ex ante fully determine the "price" of the exchange, because they usually lack the information to do so. Therefore; if the buyer commits himself to buy, he necessarily has to rely on the seller's reciprocal commitment to sell when he specifically invests his resources in the further development of the contracting process. In this context, the seller is in a stronger bargaining position, as he not only has the real estate, but also all the relevant information, on the basis of which the potential buyer grounds his acquisition decision. On the other hand, compared to the seller, the buyer is more vulnerable towards opportunistic behaviour, as he necessarily has to undertake highly specific investments in the preliminary phase, in order to be in the position of making an informed decision. Due to the asymmetry of specific investments in the pre-contractual phase, the weak contractual party has to face, at most, the risk of being subjected to the typical hold-up problem, as the stronger contractual party might have an incentive to exploit the bilateral dependence in order to expropriate the rents accruing to the specific assets. All these sets of circumstances are generally perceived as a 'bundle of complexity' which can lead to serious difficulties in the bargaining as well as the contract formation processes, hindering parties from making rational decisions based on cost-benefit analysis. This article wants to compare the usual real estate purchase procedures in Italy and Germany, pointing out efficiency traps in the course of such transactions, and especially focusing on pre-contractual bargaining situations in which parties have specifically invested their resources. It further argues that the danger of opportunism arises especially during the preliminary negotiation of agreements, and should be considered to be directly proportional to the degree of asymmetry among parties' initial transaction-specific investments.

On the Importance of Default Breach Remedies

The paper by Sloof, Oosterbeek, and Sonnemans [2007] provides an experimental investigation of the following bargaining situation. Two parties A and Β face a choice among four complete contracts with the labels yellow, green, blue, and white. Each of these contracts fully specifies a price that obtains if A performs, and damages that Β receives if A breaches the contract. After both have agreed on the contract, party A observes a random move of nature before he must take a binary decision, referred to as the breach decision. All uncertainty has been resolved at that stage, so that a rational player would simply maximize his payoff. Indeed, as it turns out, player A almost always does so in the experiment as well. Hence, to simplify, I assume in the following that this last stage of the game is played well in line with rational choice. The breach decision, however, turns out to be the only stage of the game where rational behaviour is confirmed. One out of the four contracts is initially defined as the default option by the setup before a party is given the opportunity to propose one of the other contracts on a take-it-or-leave-it basis. If the second party accepts, the proposed contract applies. Otherwise, the relationship is governed by the default contract. Under the breach decision that maximizes A' s payoff, the yellow and green contracts lead to identical outcomes. In fact, both players obtain constant payoffs, 234 for A and 56 for B, because it is never optimal for A to breach and, by assumption, uncertainty affects payoffs only in cases of breach. The blue contract leads to a constant payoff of 80 for party B, but, since A breaches with positive probability, As payoff remains uncertain from the ex ante perspective. In fact, A' s payoff is 210 with probability 3/s but may increase up to 490. His expected payoff amounts to 266. Under the white contract, finally, both parties are exposed to risk. Party Β receives payoff 280 with probability Vs, and 0 with probability %. Party A receives payoff 10 with probability Vs, but A' s payoff may increase up to 570. The expected payoffs of A and Β amount to 234 and 56, respectively, and are lower than under the blue contract.

Integrative and Distributive Bargaining Situations in the European Union: What Difference Does It Make?

Despite the distinction made between integrative and distributive bargaining situations in European studies literature, few studies have focused specifically on how these two situations differ. This article attempts to close this gap by examining two key bargaining situations involving fisheries that led to the Europeanization of this policy field. The integrative bargaining situation dealt with the negotiations about the structural policy and common organization of the market for fish products. In contrast, the distributive bargaining case focused on the protracted negotiations over resource conservation and management policies. The article focuses primarily on how the unanimity decision rule may affect negotiation patterns in the European Union and on how the specific type of bargaining situation affects policy outcomes. The thesis is that different bargaining tools are used to reach an agreement.

Reflections on public sector‐based integrative collective bargaining

PurposeThe purpose of this article is to understand better how specific conditions such as the degree of trust developed from previous negotiations, the level of expertise/style demonstrated by the negotiators, the clarity of the bargaining issues and the ability of facilitators to use problem solving‐based techniques affect the success of an integrative collective bargaining process.Design/methodology/approachThe researchers propose that cooperation may be affected by specific conditions. These key conditions were used in the analysis of two Canadian public sector collective bargaining experiences where two of the authors served as consultants and lead negotiators within the British Columbia public sector.FindingsBased on the analysis of two public sector collective bargaining experiences, it is suggested that ensuring the clarity of the bargaining issues was an important catalyst in moving the bargaining agenda forward. In addition, the previous negotiations and the expertise/style of the negotiators were important in the fragile level of trust which developed. No one condition was responsible for the success of collective bargaining. Rather, various conditions are jointly important and supportive to the overall success of the collective bargaining process.Research limitations/implicationsAs a limitation, this research is exploratory in nature and cannot be generalized to other collective bargaining situations. However, the case studies and its subsequent analysis are intended to provide a template for expanded study of collective bargaining and the mutual gain process by suggesting that the process (medium) surrounding the intervention is as important as the intervention itself.Practical implicationsFor practitioners, particularly labor relation specialists, the article provides a suite of conditions and practical strategies that may influence the cooperative nature of bargaining within their respective organization.Originality/valueThis case study paper provides a conceptual framework for both scholars and practitioners to deconstruct and analyze inter‐organizational dynamics within a collective bargaining process.

Multilateral bargaining with concession costs

This paper presents a new non-cooperative approach to multilateral bargaining. We consider a demand game with the following additional ingredients: (i) there is an exogenous deadline, by which bargaining has to end; (ii) prior to the deadline, players may sequentially change their demands as often as they like; (iii) changing one's demand is costly, and this cost increases as the deadline gets closer. The game has a unique subgame perfect equilibrium prediction in which agreement is reached immediately and switching costs are avoided. Moreover, this equilibrium is invariant to the particular order and timing in which players make demands. This is important, as multilateral bargaining models are sometimes too sensitive to these particular details. In our context, players with higher concession costs obtain higher shares of the pie; their increased bargaining power stems from their ability to credibly commit to a demand earlier. We discuss how the setup and assumptions are a reasonable description for certain real bargaining situations.

Prenegotiation Public Commitment in Domestic and International Bargaining

We use a formal bargaining model to examine why, in many domestic and international bargaining situations, one or both negotiators make public statements in front of their constituents committing themselves to obtaining certain benefits in the negotiations. We find that making public commitments provides bargaining leverage, when backing down from such commitments carries domestic political costs. However, when the two negotiators face fairly similar costs for violating a public commitment, a prisoner's dilemma is created in which both sides make high public demands which cannot be satisfied, and both negotiators would be better off if they could commit to not making public demands. However, making a public demand is a dominant strategy for each negotiator, and this leads to a suboptimal outcome. Escaping this prisoner's dilemma provides a rationale for secret negotiations. Testable hypotheses are derived from the nature of the commitments and agreements made in equilibrium.

The Evolution of APEC and ASEM: Implications of the New East Asian Bilateralism

AbstractThe traditional institutional equilibrium in East Asia—the embrace of the WTO at the multilateral level and a focus on market-driven, informal integration at the sub-multilateral level—is under heavy strain. Increasingly, East Asian countries are pursuing greater institutionalisation at the sub-multilateral level, weaving a web of preferential arrangements in response to similar strategies pursued by the US and the EU. This article examines the likely path of trading arrangements in Northeast Asia, its implications for East Asia and the future of APEC and ASEM. We propose an institutional bargaining game approach, focusing on goods, countries' individual bargaining situations and the fit with existing arrangements, and allowing an exploration of the evolution of trading arrangements in East Asia. An East Asian trading bloc has both benign and pernicious elements, depending on the ideas and beliefs held by regional actors. The contribution of a prospective East Asian bloc to APEC and ASEM primarily depends on the balance of interests between the US and the EU concerning East Asia. In view of the tremendous political and economic uncertainty in the global economy, the path to freer trade in Northeast Asia, East Asia and the world system is likely to be a bumpy one.

Multilateral Bargaining with Concession Costs

This paper presents a new non-cooperative approach to multilateral bargaining. We consider a demand game with the following additional ingredients: (i) There is an exogenous deadline, by which bargaining has to end; (ii) Prior to the deadline, players may sequentially change their demands as often as they like; (iii) Changing one's demand is costly, and this cost increases as the deadline gets closer. The game has a unique subgame perfect equilibrium prediction in which agreement is reached immediately and switching costs are avoided. Moreover, this equilibrium is invariant to the particular order and timing in which players make demands. This is important, as multilateral bargaining models are sometimes too sensitive to these particular details. In our context, players with higher concession costs obtain higher shares of the pie; their increased bargaining power stems from their ability to credibly commit to a demand earlier. We discuss how the setup and assumptions are a reasonable description for certain real bargaining situations.