Optimal negotiation of multiple issues in incomplete information settings

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Description/Abstract

This paper studies bilateral multi-issue negotiation between self-interested agents. The outcome of such encounters depends on two key factors: the agenda (i.e., the set of issues under negotiation) and the negotiation procedure (i.e., whether the issues are discussed together or separately). Against this background, this paper analyses such negotiations by varying the agenda and negotiation procedure. This analysis is carried out in an incomplete information setting in which an agent knows its own negotiation parameters, but has incomplete information about its opponent’s. We first determine the equilibrium strategies for two negotiation procedures: issue-by-issue and package deal. On the basis of these strategies we determine the negotiation outcome for all possible agenda–procedure combinations and the optimal agenda–procedure combination for each agent. We determine those conditions for which agents have identical preferences over the optimal agenda and procedure and those for which they do not, and for both conditions we show the optimal agenda and procedure.