Lax and Sebenius Reading
- Manager – create, influence, sustain, and alter parts of the organizational network of agreements
- Actions
- Private value-exceed no-agreement possibilities
- Common value-find outcome all prefer
- Discovering more is jointly feasible than previously was thought
- Creating private value – the key role of differences
- Parties have something to offer that is relatively less valuable to them than to those with whom they are bargaining
- Set of differences is often the driver to reaching agreement
- Differences of Interest imply exchanges
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- Trading on differences – trade differently valued items for mutal gain
- Unbundling differences of interest – unbundle and seek creative ways to dovetail interests
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- Probability differences suggest contingent agreements - Ie. Performer who thinks concert will sell out strikes deal with club owner who is worried about attendance of flat fee plus a percentage of ticket sales
- Issues subject to different odds – contingent arrangements can offer gains (i.e. tie price of steam electricity to oil futures, both city and steam producer satisfied) (uncertain event is of interest)
- Different Assessments of the Attractiveness of Proposed Procedures
- Parties believe they can positively affect the chances for favorable outcome of the uncertain event (feel capable of influencing outcome)
- Differences in Risk Aversion Lead to Risk-Sharing Schemes
- Agreement will generally shift more of the risk to the less-risk averse party
- Differences in time preference suggest altered payment patterns
- Future consequences can be beneficially rearranged in a way that gives earlier amounts to the more impatient party
- Complementary capabilities can be combined
- Mining contract example – dovetailed differences
- Miners from developed countries with necessary extraction technology wanted access to seabed metallic ore deposits; developing countries bordering key navigable straights and large coastlines control access
- Reached an agreement addressing differences in probability, risk aversion, and time preference
- Creating Common Value: The Role of Shared Interests
- One issue, but parties may not know they each want the same outcome, i.e. divorce settlement when one wants custody and one wants low alimony payments
- May have common values trying to achieve = incentive to cooperate
- Creating Value without Differences or Shared Interests
- Rather than compete, combine to establish economies of scale and get more in return
page revision: 2, last edited: 18 Oct 2010 23:17