The Power of Alternatives or the Limits to Negotiation
By David Lax and James Sebenius
This Article Summary written by: Tanya Glaser, Conflict Research Consortium
Citation: David Lax and James Sebenius, "The Power of Alternatives or the Limits to Negotiation," in Negotiation Theory and Practice, eds. J. William Breslin and Jeffery Z. Rubin, (Cambridge: The Program on Negotiation at Harvard Law School, 1991), pp. 97-114.
Lax and Sebenius argue that parties' alternatives to a negotiated agreement play a large role in shaping negotiations. They note that much negotiation literature focuses on tactics used within negotiations to optimize a party's outcome. These approaches tend to treat the range of possible negotiated outcomes as fixed, and focus on helping parties to achieve the best settlement from within that fixed range. The authors argue that the range of possible negotiated settlements is shaped by the various alternatives to negotiation available to the parties. Changes in the parties' alternatives to negotiation may have a greater effect on the outcome than tactics used within negotiations.
The basic test of any negotiated agreement is whether it produces a better outcome than both parties' alternative to a negotiated outcome. For instance, if one party is content with the status quo, potential settlements would have to promise some added benefit before that party would agree to negotiate. A party which is assured of a swift win in the court system will choose a litigated win over a negotiated compromise.
Many negotiation theories assume that the parties' alternatives to negotiation are fixed before negotiations start and do not change. The authors point out that alternatives can change during the course of negotiations. New information, changes in the overall situation, renewed attempts to cultivate alternatives, and the culmination of ongoing processes can all change alternatives, and so change the range of possible acceptable settlements within negotiations. For instance, an unfavorable ruling in a similar court case may radically change a party's alternatives to negotiation, and make a negotiated compromise suddenly seem like an acceptable outcome. The very act of opening negotiations may affect the parties' alternatives. In arms control disputes, for instance, once negotiations have begun the best alternative to a negotiated settlement is to continue to negotiate. Ending negotiations without some agreement leaves the parties worse off than if they were before attempting negotiations. Sebenius and Lax suggest that "resources such as effort, time, or money should go toward affecting alternatives or generating new ones until the expected improvement in the value of the negotiated outcome from expending additional resources just equals the cost of doing so."[p. 98]
The authors urge negotiators to recognize the impact of alternatives to agreement. To this end they further explore the effects of alternatives on negotiations, offer three general prescriptions for the negotiator. First, negotiators should take time to evaluate their alternatives to negotiation and, when possible, to take steps to improve those alternatives. When the possible negotiated outcomes are inferior to the alternatives, the parties may reasonably decide not to negotiate or to break off negotiations. While such evaluation and enhancement of alternatives may lead to "failed" negotiations, they may also produce superior outcomes for one or even both parties.
Second, negotiators should be aware that people tend to overestimate the attractiveness of their alternatives and the likelihood and degree of their success. Negotiators must be careful to counteract these biases. Unrealistic perceptions can be deflated by seeking the perspective of an uninterested third party. Direct exposure to the other side's perspective can moderate inflated expectations. Mini-trials are also a useful technique. Negotiations may be blocked when both parties have inconsistent and overly optimistic assessments of their alternatives. In such cases the parties' biased perceptions must be moderated in order to make the dispute "ripe" for negotiation.
Third, the authors note that "the ability to affect alternatives and perceptions of them lies at the root of many conceptions of bargaining power.'"[p. 105] Thus negotiators who seek to increase their bargaining power should focus on their alternatives. Lax and Sebenius describe how various types of bargaining power can be explained in terms of the parties' alternatives. The more intense a party's preference is the less power they are thought to have in negotiations. Tactical skills are also thought to be a source of bargaining power. However, both of these types of "power" operate only within a given range of possible negotiated outcomes. Since the range of possible negotiated outcomes is set by the available alternatives, these types of power are unimportant in comparison to the power to affect alternatives. Making irrevocable commitments increases bargaining power. The authors however argue that a commitment "functions by restricting the bargaining range in a way that favors the committing party."[p. 107]
Making credible threats increases bargaining power by worsening the other party's alternatives to a negotiated agreement. Dependent parties have less bargaining power because they generally have fewer alternatives to dealing with the superior power than the superior power has in dealing with them.
Available alternatives also affect whether parties continue to adhere to an agreement after it is made. For example, "an insecure contract is an agreement in which one party's incentives to abide by the terms are reduced after the other party has made an irrevocable first move in accord with the agreement."[p. 109] Often, parties' alternatives to continuing to adhere to an agreement will change in predictable ways over the course of that agreement. A well designed agreement should try to anticipate these alternatives, and should be structured to make the agreement the superior option at each later stage of its implementation.
Controlling alternatives is also a key to influencing the content and outcomes of decentralized bargaining systems. Sports leagues illustrate this. When the players' union and the league allow free agency, i.e. players may bargain for employment with any team, the players have more alternatives. They can always cut a better deal with another team. Free agency leads to higher player salaries. When reserve clauses are allowed, i.e. players are bound to negotiate with only one team, the players have fewer alternatives. Either they reach an agreement with this team or they leave the sport. Reserve clauses tend to keep salaries low.