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Negotiating under time pressure

Don Moore, professor, Haas School of Business | July 29, 2011

There are two types of time pressure in negotiation: final deadlines and time costs. The media coverage of the negotiations over the debt ceiling have focused on an August second final deadline, and Congressional Republicans have been talking for some time as if it’s the Democrats’ deadline. These Republicans have argued that the government can really continue meeting its obligations and servicing its debts, even without the ability to borrow more. All it needs to do is move a few piles of money around.

But the distinctive feature of a final deadline is that when the deadline passes, the negotiations are done. After that point, no deal is viable. In this case, of course, the negotiations will continue. Passage of the August second deadline will be painful, but who feels that pain most acutely? Democrats have been pointing to the results of polls suggesting that if the government defaults, Republicans will bear the brunt of the public’s outrage. But Republicans also know that a U.S. default will have dire economic consequences, which will make our nation’s economic picture bleaker than it already is; and everyone knows that whether a President wins re-election depends on nothing more than the state of the nation’s economy.

These questions are profoundly important, because in a negotiation under time pressure, it is the most patient negotiator who will get the best outcome. The negotiator who is desperate to get a deal quickly will concede on the issues in order to get it. And the more patient negotiator can hold out for these concessions, knowing that time’s passage is more painful for the other side. It is common, in fact, for negotiators to pretend to be more patient than they are in order to convince the other side that they will have to concede in order to get a deal. In a strike, the union will insist that the strike fund is flush and that the membership is ready for a long strike. The company, on the other hand, confidently asserts that it has plenty of inventory to outlast a long strike.

Meanwhile, as both the union and the company hold out, hoping to convince the other side to give in, they can watch the business withering, as frustrated customers find other suppliers and products. But now there is more at stake than the viability of a single company. As Republicans and Democrats bicker over the terms of a deal, it is our nation’s economic welfare that is at stake. A U.S. default would be a real tragedy and is entirely avoidable.

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