Changing the Nature of Negotiations: From One-Sided to Balanced Standard Contract Terms

15 Pages Posted: 7 Dec 2020 Last revised: 28 Jan 2021

See all articles by Henrik Lando

Henrik Lando

Copenhagen Business School - CBS Law

Hal Bretan

affiliation not provided to SSRN

Date Written: December 7, 2020

Abstract

Many businesses adopt one-sided boilerplate contract terms and conditions that lead to protracted negotiations. Often, the parties ultimately reach a compromise that could have been reached sooner if they had put forward more balanced contract terms at the outset. We ask why this seemingly irrational behavior persists and suggest a different approach. A dominant theory suggests that putting forward balanced terms may be seen as a sign of a weak bargaining position. We argue, however, that agency conflicts and cognitive biases often better explain said behavior. Moreover, we advocate a speed-to-contract strategy where the parties elect to use more balanced (value-maximizing) terms from the outset, and thereby avoid costly negotiations as well as delays in realizing the mutual benefits of a transaction.

Keywords: Contract negotiations, contract terms, agency conflicts, cognitive bias, bargaining positions

JEL Classification: K12, D23, D86

Suggested Citation

Lando, Henrik and Bretan, Hal, Changing the Nature of Negotiations: From One-Sided to Balanced Standard Contract Terms (December 7, 2020). Copenhagen Business School, CBS LAW Research Paper No. 20-40, Available at SSRN: https://ssrn.com/abstract=3744153

Henrik Lando (Contact Author)

Copenhagen Business School - CBS Law ( email )

Porcelaenshave 18B, 1
Frederiksberg 2000
Denmark

Hal Bretan

affiliation not provided to SSRN

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