Compromises

Obama and Leaders Reach Debt Deal
By CARL HULSE and HELENE COOPER
Published: July 31, 2011
http://www.nytimes.com/2011/08/01/us/politics/01FISCAL.html?hp

The fundamental, albeit ironic, feature of a compromise is that every participant to it looks at the finished document and thinks, "This can be improved to favor me."  The compromise is, by definition, worse for each participant than the best deal that participant can get if he or she crafted the deal alone.  For each participant, therefore, there is another deal that he or she prefers to the one being signed.

How is it possible, then, for a negotiator who enters the discussion with the desire to get the best outcome to settle for what he clearly believes to be the second best outcome?

I guess during the course of the discussions, the negotiator comes to realize that the first-best outcome is impossible to achieve, because others, facing their competing first-best outcomes, will never concede too much.  The negotiator is then faced with the decision between no deal and the second-best deal.  If the second-best deal is preferable to no deal, then he agrees to the compromise.  If the second-best deal is worse than no deal, yet the first-best deal is better than the no deal, then the negotiator continues fighting; but this case is likely rare.

But how does the negotiator come to know that the others will not "concede too much"?

I think negotiations that end in compromises are, at their base, learning exercises in which each negotiator not only learns the contours of the other negotiators' first-best agreements (and in rare cases find out their first-best agreements entirely), but also gains an insight into how far they past their first-best scenario they can be pushed before they start resisting.  That resistance, in fact, controls the outcome of the negotiation much more clearly than does some understanding of the others' first-best outcomes (which, I believe, comes secondary).  If your opposing negotiator is will to give you more of what you want and get you closer to your first-best outcome, you'll take all that he will give (everything else being equal), since your goal is to attain your first-best outcome.  The less your opposing negotiator gives, the less you can take without a fight.  The settlement, then, is controlled by the give-and-take of each negotiator.  

But how much education really happened here?

Perhaps in typical congressional negotiations, little education takes place because each participant already knows so much about his own team and the opposing negotiators.  Take Biden, who has spent decades in the Senate and can pick up the phone and talk to McConnell like they were old pals, albeit at different sides of the aisle.  But this negotiation different in that respect because Obama was somewhat new, the Tea Party Republicans were somewhat new, and many were new to each other in the context of such a high-stakes issue.  Previous negotiations, especially over the healthcare bill, were high-stakes.  But these hit on spending and taxing much more directly than those.   And the Tea Party candidates saw this as their chance to take a stance much more clearly than they saw the healthcare bill -- plus, many were just settling in at the time.

So this was a remarkably educational moment for both sides -- and the education that took place was one of understanding not only the contours of the first-best outcomes of the TP candidates, but also how much they were willing to budge with respect to their desired outcomes.

I bet Boehner will not soon forget their reluctance to fall in line.