Course Number: 95-790

Negotiation

Units: 6

Enrollment limited to 30 students.

Negotiation is a process in which two or more parties make decisions to resolve conflicting interests. Decision makers use negotiation in a variety of circumstances - collective bargaining, negotiating out of court settlements, resolving conflicting interests within or across firms, agreeing on a purchase price for a good, and many other instances.

The objective of this course is to understand the process of negotiations and how the structure of the negotiations process affects the outcomes achieved. Students will learn to establish a framework for analyzing various types of negotiations. For example, differences between distributed vs. integrative negotiations and "one shot" vs. repeated negotiations will be examined. Some examples of the topics to be discussed are described below:

1. Negotiation is typically conducted under uncertainty about the other side's bargaining position. Here, strategic aspects of the negotiations process will be important and reputation effects may occur if the bargainers are involved in repeated negotiations over time.

2. Bargainers frequently fail to reach agreements that are Pareto optimal, even when such options exist. For example, parties bargaining over the price of a house may fail to reach an agreement even when the lowest price the seller will accept is less than the highest price the buyer will pay for the house. These inefficiencies in the negotiation outcomes can lead to an inefficient allocation of society's resources.

3.Negotiation outcomes are the product of the bargainers' strategies and the structure of the "no agreement" outcome. For example, a manager may bargain with a supplier over the purchase price of a shipment of inputs. The strategy the manager adopts will be a function of the price she could receive from another supplier. Cognitive psychology examines how individuals deviate from rationality in making decisions. Economic theory describes how rational individuals should make decisions. We will examine the implications of these two approaches for negotiation.

4. Whether or not individuals can form coalitions will be important in negotiations. In multi-party negotiations, the strategies employed and the outcome will depend on whether or not a subset of the bargainers can agree to negotiate jointly against the remaining bargainers.

5. Negotiations are often conducted on behalf of others. These are called principal-agent problems. For example, lawyers (the agents) may bargain with each other on behalf of their clients (the principals) over an out-of-court settlement. This type of negotiation will differ from negotiation between the principals themselves. To the extent that the incentives of the agents are different from those of the principals, the outcome will differ as well.
Throughout the course, students will participate in negotiation exercises, either individually or in teams. The purpose of these exercises is to demonstrate the concepts which are discussed in class on a more theoretical or abstract level.

Faculty:
Linda C. Babcock
Jared Simmer