A Normative Model for Negotiations

Negotiations between a multinational corporation and a host government are considered for an international joint venture. Various negotiating behavior concepts that the two parties may use are discussed. The process of concession-making is formulated as a sequential decision problem, where each party has an opportunity for concession-making in alternating negotiation sessions, the magnitude of the concession depending on the current state of negotiations and the behavior concept being employed. A dynamic programming model is developed to yield normative recommendations as to concession-making. Numerical examples illustrating the model are presented.