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
        • Trading on differences – trade differently valued items for mutal gain
        • Unbundling differences of interest – unbundle and seek creative ways to dovetail interests
    • 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