Bargaining

Bargaining is an everyday activity that pervades all social life and, arguably, is the most important mode by which political decisions are made. It summarizes all social activities in which individuals or corporate actors have a common interest in working together but disagree on how they should cooperate. Bargaining is therefore a voluntary process through which negotiators try to distribute among themselves a mutual benefit. In politics, the mixture between cooperation and conflict that characterizes bargaining situations becomes apparent at all levels of decision making. An example of a recurrent, difficult bargaining process is the distribution of the taxed income of a polity between competing interest groups who advance contradicting claims to bolster their demand for a large share. Below, major game theoretical solutions to bargaining problems and their possible applications in political science are discussed.

In the simplest political bargaining problem, two negotiators disagree over how to divide a pie worth one unit of a fictitious currency (eurodollar). Any outcome in the “bargaining zone,” which is delimited by the minimal individual payoffs the actors expect, can result from the negotiations. Trivially, no bargain is feasible if the minimal expectations do not overlap or, in other words, if the set containing the possible outcomes is empty. If the minimal expectation—technically often called the “reservation price”—of one player is zero, an extreme solution in which one side cashes in 1 eurodollar while the other side leaves the negotiation table empty-handed can occur, since the unlucky negotiator is assumed to be indifferent to the lack of a reward and the failure of negotiations. The “fair solution,” in the absence of any power imbalance or neediness of a negotiator, is a 50:50 deal that splits the eurodollar into equal shares.

In many bargaining situations, actors demand a disproportional division of the spoils. The other negotiators then have to judge whether a credible claim that negotiations would fail without a concession from the other side supports the request. If they reject this demand, bargaining stops or is interrupted. Another suboptimal outcome materializes when negotiators accept a disproportional division and fail to call the bluff by the other side that the negotiations would break down if no concession were granted. The fate of a claim depends on the ability of the negotiators to communicate credibly that their claims are sincere. This creates in return an incentive to bolster the credibility of a specific position through strategic moves.

Social scientists who try to understand bargaining belong to either one of two camps. The first approach stems largely from social psychology and is, by and large, empirical. It tries to assess the importance of cognitive failures and other psychological features based on the performance of individual negotiators. In political science, the strategic theory of bargaining, as it was developed by Francis Edgeworth, Arthur Bowley, Frederik Zeuthen, and John Nash, is more influential as it takes into account that negotiation outcomes result from the interaction of at least two forward-looking actors. Technically, the strategic theory of bargaining is based on game theory. Its applications pertain to any subfield within political science and cover a wide variety of issues, ranging from the analysis of interstate war to delegation problems in public bureaucracies.

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