Optimizing multi-stage negotiations

We consider procedures where issues of varying importance and risk are nego tiated in stages. Negotiation at any stage requires an agreement at each pr evious stage. If negotiation terminates, players realize the benefits from all earlier agreements. We formalize this process by a strategic n-stage ne gotiation game. The expected subgame-perfect equilibrium outcome is charact erized by an intuitive, compact formula, which aggregates all the structura l elements of the multi-stage process. We describe the optimal negotiation agenda for a given decomposition of the bargaining problem, and we derive i ntuitive prescriptions for an optimal decomposition. (C) 2001 Elsevier Scie nce B.V. All rights reserved.