Experimental studies with the "multilateral bargaining model": a strategic analysis

Journal of the Academy of Business and Economics, Jan, 2004 by Willie J. Redmond

ABSTRACT

This paper examines the Multilateral Bargaining mode/of Rausser and Simon (1991), using the Uruguay Round Uruguay provides but one data point, limiting the possibilities for field testing, pilot experiments are conducted whereby the mode/can be behaviorally tested in a laboratory setting. In the lab a controlled negotiation environment is created and repeated a significant number of times, employing payoff parameters that are empirically estimated with a genera/equilibrium model The game is played in strategic form, assigning five players to each negotiating group. The players are asked to negotiate by making three strategy choices. (1) a policy proposal, (2) a feasible coalition and (3) a minimum payoff threshold at which he or she will join another's coalition. Findings from the experiments are compared to the actual negotiations, and to results that were generated in a companion set of simulation exercises. We find similar results as were found in the simulations, and find that the alternate approach from Redmond (2003), using a sector-specific scenario would more closely mimic the dynamics of the Uruguay Round. However the primary contribution of this study is to demonstrate how economic models of the impacts of policies can be integrated with bargaining models of negotiations over those policies, and then replicated in the experimental laboratory.

1. INTRODUCTION

The objective of this study is to behaviorally test the Multilateral Bargaining (MB) model, due to Rausser and Simon (1991), in an experimental laboratory setting. Previous studies have used the Rausser and Simon MB model to simulate a number of negotiation environments. Two studies, Adams, Rausser and Simon (1996) and Thoyer, Morardet, Rio, Simon, Goodhue, and Rausser (2001) examined the complexities of water negotiations, in California and South West France, respectively. Yet another, Pinto and Harrison (2003) used the model to study coalition formation in the recent environmental negotiations to reduce carbon emissions.

Redmond (2003) employed the MultiRegional Trade (MRT) computable general equilibrium model, due to Harrison, Rutherford and Tarr (1997), to empirically generate the welfare changes that would accrue to the primary players in the Uruguay Round Negotiations on Agriculture, as they reduced the levels of the targeted policy instruments. These policy instruments are export subsidies, production subsidies, and import tariffs. With this information, empirical estimates of the primary negotiators' preferred policies were calculated. Subsequently Redmond (2004) uses those preferred policies to calibrate the MB model, thus tying the impact of the economic policies with the negotiation process in which the final policies were determined. Of special interest were the coalition formation and the policy results.

Our goal in this study is to take these empirical results, and use the experimental laboratory to create a controlled negotiation environment that can be recreated and repeated a significant number of times. There is a general lack of long time-series data on negotiation outcomes under stationary institutional conditions, as well as a limited quantity of cross-section data on multilateral negotiation environments. For example, the outcome of our targeted study, the Uruguay Round Negotiations on Agriculture, provides only a single data point in the strategy space. Therefore Redmond (2003), and then Redmond (2004) showed how economic models that quantify the impacts of policies can be integrated with bargaining models of the negotiations over those policies. In this study the primary contribution is to demonstrate how these results can be replicated in the experimental laboratory.

We will proceed in the following manner. In Section Two we give a description of the MB model. Section Three presents modifications on our previous research. In Section Four we summarize previous experimental work in the area. Section Five addresses the design and significance of our experiments, explaining our primary concerns and the relevance to actual negotiation environments. Finally in Section Six we discuss some preliminary findings from our study.

2. THE RAUSSER AND SIMON MULTILATERAL BARGAINING MODEL

The Multilateral Bargaining model is a sequential, non-cooperative game in extensive form, with a finite number of players, n 1, and a finite but arbitrarily large number of rounds, T. The player set consists of n 1 members because it is dictated that a central (essential) player must belong to every admissible coalition. The central player is the '0 th" player, and the 1 though n players operate peripherally. The provision for the essential player is a critical restriction on the applicability of the model.

The model is of the class of spatial games, where instead of proposing the division of a predetermined pie, as in the Stahl (1972) and the Rubinstein (1982) games, it is assumed that the size of the pie is determined by the policy outcome. This is an important note in our present application, as the total net returns to the governmental agents in the Negotiations on Agriculture, differ according to the degree of liberalization.