The Politics of Compromise

Abstract

Many organizations rely on their members to develop solutions to specific problems. Universities establish search committees to hire at the senior level or to recommend changes to the curriculum. In a very similar fashion, standards bodies routinely form working groups to define the properties of a new technological standard. In both settings, there are no readily available solutions (i.e., candidates, curricula, standards) from which to select. Instead, the members of the organization must invest time and effort developing potential solutions. Furthermore, different members may have conflicting preferences over the feasible alternatives: which candidate to hire or which courses or patents to include in the curriculum or standard, respectively. Finally, as decision rights are typically shared, members must ultimately come to an agreement over which proposed solution to adopt.The following problem is at the heart of all these examples. Because developing a proposal is costly, the first agent who presents a concrete proposal acquires considerable bargaining power. The other agents can avoid further development costs by approving his project and, hence, are willing to endorse projects that are not ideal from their perspective. When agents have conflicting preferences over potential * Bonatti: Sloan School of Management, Massachusetts Institute of Technology, 100 Main Street, Cambridge, MA 02142 (e-mail: bonatti@mit.edu); Rantakari: Simon School of Business, University of Rochester, 252 Elmwood Avenue, Rochester, NY 14627 (e-mail: heikki.rantakari@simon.rochester.edu). We gratefully acknowledge the support of the Project on Innovation in Markets and Organizations (PIMO) at the MIT Sloan School. We would like to thank

Repeated Interaction in Standard Setting

“…Furthermore, an increase in α also raises q 1 , the effect of which may go either way (see Proposition 6). Bonatti and Rantakari (2016) show that raising the super-majority requirement (γ) and implementing a rule removing projects that have not been adopted from further consideration (which corresponds to α = 0 in our setup) can induce project proposers to compromise, thus moving the proposed projects closer to the socially optimal ones. This provides a rationale for the evidence in Baron and Spulber (2015), according to which most SSOs require a super-majority, rather than a simple majority or unanimity, and for the prevalence of rules discarding proposals that have been voted down.…”

“…If there are two proposals on the table, then it chooses B 1 's with probability β and B 2 's with probability 1 − β. Like the rest of the literature (e.g., Farrell and Simcoe, 2012;Bonatti and Rantakari, 2016), we rule out side payments between participants.…”

“…According to Bonatti and Rantakari (2016), most SSOs use rules whereby votes on proposals are based on motions; this implies that they are taken sequentially. Chiao et al (2007) survey 59 SSOs and report that most SSOs in their sample use majority voting (34%), some require a super-majority (27%), and only a small fraction require unanimity (13%).…”

Repeated interaction in standard setting

“…Bonatti and Rantakari () show that raising the super‐majority requirement () and implementing a rule removing projects that have not been adopted from further consideration (which corresponds to in our setup) can induce project proposers to compromise, thus moving the proposed projects closer to the socially optimal ones. This provides a rationale for the evidence in Baron and Spulber (), according to which most SSOs require a super‐majority, rather than a simple majority or unanimity, and for the existence of rules discarding proposals that have been voted down.…”

Designing Institutions for Diversity

“…It would be interesting to see whether and how centralization would help to resolve this trade o §. In a related setting, Bonatti and Rantakari (2015) consider a setting where two agents choose which project to develop. To successfully develop a project, an agent exerts e §ort until a success occurs.…”