Negotiating and Bargaining in Economic Development

By Peddle, Michael T. | Government Finance Review, June 2008 | Go to article overview
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Negotiating and Bargaining in Economic Development


Peddle, Michael T., Government Finance Review


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"Economic development projects are negotiations between companies or organizations looking for the best place to set up shop and the communities in which they are looking. As with any business negotiation, certain information is shared between the two parties so that each can better understand the options and determine the best scenario lot both parties."

--Cullen Larson, executive director, Georgia Economic Developers Association, November 2005

Both government and the private sector bring special expertise to the economic development process that creates a relationship; economic development cannot generally succeed without both government and the private sector committing resources and skills. Developers generally have a comparative advantage in strategic vision, economic market analysis, skills and experience in financial pro forma analysis, business acumen, and expertise in working with short timelines. Governments' comparative advantage lies in long-term outlook, the ability to raise revenue through compulsory finance tools such as taxes, access to capital markets on favorable terms (e.g., tax-exempt status or the relatively low-risk status for general obligation debt), expertise in building and maintaining infrastructure, and greater flexibility in managing timelines. Exploiting these comparative advantages through bargaining can improve the outcomes of economic development projects.

Yet, as easy as this notion is to develop and justify, open bargaining runs counter to the culture typically present in the economic development process. As one developer said, "I understand and believe that cooperation can be good, but if I cooperate and share information honestly, I lose the ability to play one community off against another"

Negotiations are nearly always required to see economic development projects through the process of conception through implementation. Economics and politics both play important roles in determining whether a project ever makes it to the development approval process, or beyond. Some good projects are not implemented because of a competitive and adversarial tone to negotiation, which does not always allow those involved in the negotiation to recognize the requisite economic and political case for the project.

But the process can be streamlined by improving the levels of information each party has, helping to encourage a bargaining style that leads to win-win outcomes. This article explains types of negotiation and bargaining, and discusses the concept of comparative advantage and its importance in the economic development bargaining process. Comparative advantage is linked to the concept of win-win bargaining, thereby building the case for mutual gains in economic development through more effective negotiation and bargaining.

INTRODUCTION TO NEGOTIATION AND BARGAINING

Different situations require different negotiation theories and techniques. A theoretical framework for understanding negotiations, developed by Walton and McKersie, (1) presents four circumstances that account for most negotiation behavior: (1) distributive bargaining; (2) integrative bargaining; (3) attitudinal structuring; and (4) intra-organizational bargaining. In distributive bargaining, the parties involved in the negotiations are competing to gain the highest possible share of a fixed set of rewards: They start with a pie and bargain over how to distribute the pieces. This situation is a zero-sum game, in which the gains of one party mean losses for other parties involved. By contrast, in integrative bargaining, all parties work to develop mutually beneficial solutions: Everyone at the table comes together to increase the size of the pie in order to create win-win outcomes. Integrative bargaining is a positive-sum game in which interaction leads to greater payoffs for all parties than they could have achieved through individual action.

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