Holding Out for Concession: The Quest for Gain in the Negotiation of International Agreements

If the terms of a potential international agreement are interpreted as sharing surpluses generated by cooperation, they can be viewed, on an item by item basis, as giving an advantage to one or the other party. By interpreting bargaining outcomes in terms of gains or losses relative to the status quo , we modify Rubinstein's full information bilateral alternative offers bargaining model, and find that this opens up new bargaining tactics in equilibrium. The Rubinstein solution no longer provides unique resolution to the bargaining problem. Instead, negotiators can choose from a continuum of strategies that involve holding tough positions and waiting for the other to concede. The tactic is visible in negotiations as diverse as Strategic Arms Limitation Talks (SALT) or North American Foreign Trade Agreement (NAFTA). This occurs although our negotiators are assumed to be fully informed about each other's priorities. Given the other's offer, a negotiator can choose optimally from a whole range of counteroffers in our model. But all of these leave her with the same ex ante expected utility. By focusing on the possible outcomes of a given strategy choice, we define an expected ex post evaluation of strategy that discriminates between strategies that were equivalent ex ante . Negotiators who seek to maximize this ex post valuation choose a tough bargaining position, offering less than the Rubinstein share, and wait, hoping that the other side will concede before they do.