DEC vs.

Riverside
Debrief

env. & human affairs, sanda kaufman

game results, summer 2009

DEC -RIVERSIDE AGREEMENTS

700

600 X
julia,
julia, X
christina &
ne’
ne’quinne
500 stacey,
stacey,
mike
400 jessica,
jessica,
Pareto f rontier
DEC

raquel
christine,
christine,
300 Settlement values
erica

200

100

0
0 50 100 150 200 250 300 350 400

R I VERSIDE
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negotiation fundamentals 4

Summary of DEC & Riverside costs

Riverside DEC

Technology

a. Rotoblue with no assistance 350 200

b. Technoclean with no assistance 497 0
c. Technoclean with guarantee 450 48
d. Technoclean with guarantee and subsidy of $s 450-s 48 + 2 x s
e. Technoclean with subsidy of $s 497-2 2xs
f. No scrubber 200 1000
Plant disposition

a. Remain open 200 0

b. Closed for two months 100 50
c. Closed for six months 150 200
d. Closed permanently 7000 1100

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 Summary of DEC & Riverside costs
Liability Assistance
R DEC
a. 0 270 0
b. 50 243 50
c. 100 216 110
d. 150 189 175
e. 200 162 250
f. 300 108 390
Public Relations
a. negative (any amount) 200
b. none/0 0 0
c. positive/50 (75) 50
d. positive/100 (100) 100
e. postitive/150 (120) 150
f. Positive/200 (130) 200
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Summary of DEC & Riverside costs

Compliance incentives
R D
a. 0 0 0
b. 50 (50) 70
c. 100 (100) 160
d. 150 (150) 280
e. 200 (200) 400

Reservation prices 640 900

(max costs or go to court)
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About the game

scorable
integrative (variable-
(variable-sum)

multi-dimensional
(vs. one-dimensional & distributive)
example of purely distributive situation:

Vicky sells a pen to Dave
 Someone offered Vicky 50 cents
 Someone offered Dave a pen for $1

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 Negotiation theory:
The Structure of Distributive Bargains

Surplus Surplus
for Vicki for Dave

p
pen
0 .5 1.0
price
Vicki’
Vicki’s Dave’
Dave’s
reservation price reservation price

Zone of possible
agreements
[.5, 1.0]

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Negotiation theory:
The structure of Integrative Bargains
Pareto
S
frontier
Surplus for Solution set
Party A
R

Q
T B’s
reservation price
Surplus for
Party B

A’s
reservation price

env. & human affairs, sanda kaufman

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DEC-
DEC-RIVERSIDE Agreements
East of the y axis are good for party B
North of the x axis are valuable for party A.
Southwest quadrant: negative value for both
In the northeast quadrant have positive value
for both.
The zone of possible agreement (zopa
(zopa)
zopa) –
the set of solutions in the northeast quadrant:

agreements are preferred by both parties to their
no-
no-agreement alternatives (their reservation prices).

these agreements are known as the Pareto frontier.

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 Some key terms

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Negotiation theory:
Agreements
An agreement is considered
Pareto superior to another if

it is preferred by at least one party without
hurting any of the others, meaning

it is to the northeast of that agreement,
because a trade that moves the parties
northeasterly benefits both.
An agreement is inefficient if the parties fail
to realize some or all the available surplus

if we can find another agreement that makes
one party better off without hurting the other.
env. & human affairs, sanda kaufman
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Negotiation theory:
Agreements (cont.)

In a distributive bargain, all agreements are

efficient, but
there are often many inefficient solutions
to an integrative negotiation.

the set of efficient agreements is the northeast

boundary of the northeast quadrant
(the upper right-
right-hand border of the ZOPA) -
the Pareto frontier;

no agreements inside the frontier are preferred
by both parties to agreements on the frontier.

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A CONSENSUS-BUILDING TOOL FOR

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 Negotiation theory:

Moves

party A prefers agreements to the north,

B prefers moves to the east

joint gains result from moves to the northeast.

A negotiation with a frontier that bows out is more

integrative than one that is flat.
It is impossible to make a Pareto improvement
beyond the frontier
Although all agreements on the Pareto frontier are
efficient, neither party would be indifferent between
two such settlements:

Party A prefers to the north, while party B prefers to the east.
One method for tracing the Pareto frontier is to
plot by computer every possible agreement
between the parties
env. & human affairs, sanda kaufman 15

DEC-
DEC-Riverside real
Pareto frontier

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Negotiation theory:
The basis of joint gains
Individuals enter negotiations to attain
through joint action
more than they could by acting unilaterally.
unilaterally.
Agreement can be reached when for each party
a proposed solution is superior to
the non-
non-agreement alternative.

If the alternatives (BATNAs
(BATNAs)
BATNAs) of a party are superior
to the negotiated solution,
that party should reject the negotiated solution and
take a BATNA.
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 Negotiation theory:

The basis of joint gains (cont.)

Joint gains from negotiation can often be
found because
negotiators differ from one another.

Since they are not identical
(in tastes, endowments, capabilities, etc.),
 each has something to offer relatively less valuable to them
than to those with whom they are bargaining.
 this runs counter to the intuitive notion that common
interests are the cornerstone of good working agreements.

Completely identical individuals may not be able
jointly to improve their positions by interacting:
 their interests conflict diametrically
 any bargaining will be purely distributive.
env. & human affairs, sanda kaufman
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Negotiation theory:

The basis of joint gains (cont.)

Joint gains from negotiation can often be
found because
negotiators differ from one another.

If differences are admitted, negotiation opens up the
prospect of joint gains. Examples: differences in
 interests;
 probability assessment or forecast;
 risk aversion or attitude toward the passage of
time;
 initial endowments;
 capabilities;
 access to technology.
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Back to DEC vs. Riverside

The potential for joint gain is found in
the parties’
parties’ different valuation of
various outcomes.
For example,

the imputed costs for DEC are not equal to
those for Riverside.
Riverside
The parties’
parties’ valuation of their expenses
on a given issue is influenced by

precedent

other subjective criteria.
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 DEC vs. Riverside
Subjective assessments of values of various
outcomes differ from one another 
potential for mutually beneficial trading exists.
For example,

DEC’
DEC’s and Riverside’
Riverside’s valuations of the compliance
incentive and public relations issue vary considerably.
 The first $50K spent on public relations is very valuable for
Riverside and not too costly for DEC;
 expenditures on compliance incentives are extremely costly
for DEC.

From these differences in real and imputed costs, there
is potential for Riverside to trade something relatively
more valuable to DEC for something relatively more
valuable for Riverside.
• Both parties would benefit from such a trade. (mutual gains)
env. & human affairs, sanda kaufman 21

Mutual gains
negotiators’’ task is to
Given the potential for joint gains, the negotiators
find the mutually advantageous trades.
To establish where the differences exist,
the parties must share information and cooperate.
Some valuation differences are particularly difficult to exploit.
exploit.

parties might have identical valuations of a complex issue when that issue
is considered as a whole,
yet they might value its component parts differently. Mutually
advantageous trades might exist with respect to some of these parts.

to realize these joint gains, the issue must first be “unbundled”.
 In the DEC-Riverside negotiation, it might be effective to “unbundle” the subsidy
from the choice of scrubber.
To “trade”
trade” effectively parties must have good understanding of

their own interests and those of their counterparts.

exactly how much they would be willing to concede on one issue in
return for concessions by their counterparts on other issues
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Example
Differences in valuation lead to joint gain: trade to create value
Position Cost to Cost (Gain) to
Issue DEC Riverside

Initial agreement

Public relations 0 0 0
Compliance incentive 50 70 (50)
Total cost 70 (50)

New agreement (with trade)

Increase public relations to: 50 50 (75)

Reduce compliance incentive to: 0 0

Total cost 50 (75)

NET CHANGE FROM TRADE: Gain 20 Gain 25

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 Creating and claiming value
Negotiated outcomes are efficient if they lie on the
Pareto frontier
Finding an agreement on the frontier requires
cooperation and the sharing of information.
The process of making Pareto improvements
(shift the outcome to the northeast on the utility
map) is called “creating value.”
value.”

Example:
 the trade between DEC and Riverside between public relations and
compliance incentives
 the parties shared information in order to achieve joint gains.
Negotiators often fail to realize the potential for
value creation because moves to create value affect
how the value is divided (path-
(path-dependence)
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Creating & claiming value

Value to
DEC
C Path dependence of
Pareto moves
B

Value to Riverside
Paths to the frontier - Methods of creating value affect
the division of value
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Claiming tactics
Changing the perceived zone of agreement
(misleading, making actual changes, or making commitments)

overstate one’
one’s reservation price:
 DEC could adamantly refuse an agreement with total costs
of $800K, asserting that such an agreement would be far
above its reservation price and therefore unthinkable.
 This would influence Riverside’
Riverside’s perception of the
bargaining set and might make Riverside more generous.

make commitments/threats in order to claim value;
 such moves can revolve around reservation prices.
 Riverside could threaten to close its plant forever unless
DEC offered an agreement which cost Riverside < $400K.
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 Claiming tactics
class of claiming tactics only possible in integrative
bargains

mislead others about differences (in preferences, beliefs, risk,
time, etc.)
to minimize the value of an opponent’
opponent’s concession.
 DEC could

misrepresent its interests on the “plant disposition”
disposition” issue.

feign total insensitivity to the unemployment problem in Forks, claiming it wants
to look “tough”
tough” to the environmental community.

argue that shutting down the plant permanently or at least for six
six months, would
shore up the administration’
administration’s reputation on the environment.
 demand concessions from Riverside on other issues in return for accepting a plant
closure of only two months:
it would then effectively be getting paid to accept an outcome iitt prefers.
 Riverside might claim it does not want to be shut down, hoping to
to
sacrifice two months for other concessions.
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negotiation fundamentals 27

Creating vs. claiming

Competitive moves to claim value tend to
impede the learning and ingenuity necessary to
create value.

Need to share information to create joint gains

If one shares too much information about one’s
preferences, one becomes vulnerable to claiming
tactics.
Creating value is the integrative component in
negotiations:

the parties strive for an efficient outcome.
Claiming value is the distributive component:

the parties must distribute gains created.
env. & human affairs, sanda kaufman 28

The negotiator’
negotiator’s dilemma

Value to
DEC (create,
claim)
(create,
create)

(claim, (claim,
claim) create)

Value to Riverside

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 Creating vs. claiming
If the parties had complete information about
their counterparts, one would expect the
negotiators to reach an efficient agreement.
The complicating factor in the game is that

the parties are bargaining under incomplete
information about each other’s preferences.
They must learn about their differences before they
are able to exploit them.

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The negotiator’
negotiator’s dilemma

Action of DEC

Create Claim

Action of Create (Good, (Worst,

Riverside Good) Great
Claim (Great, (Bad, Bad)
Worst)

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