Affordable Housing Institute : US

Though the words are often confused, they need to be distinguished:

 

 

Bargaining is the Arabian bazaar:

 

 

I have a pot I wish to sell, you see my pot you wish to buy, we engage in a game of bluff and double-bluff to set a price. 

 

Genie not included

 

The pot, meanwhile, sits undisturbed, unruffled, and unaffected by our bargaining.

 

Once, on vacation in Istanbul, I had the great entertainment of holding my own playing speed backgammon for several hours with the Grand Bazaar rug dealers — they were surprised not so much that the dog talked well, but that it talked at all — while the Careful Shopper dueled several pillow merchants.  It was a fair fight between well-matched antagonists who both came to play, and in the end, both walked away happy (Nancy have twice turned away and twice being called back), with pillows that now grace our living room and remind me each time of her thrift.

 

 

Bargaining also typically has two other elements that make transacting high-risk:

 

1. It’s a one-time event: the parties will separate and may have no further contact.
2. It has zero time duration — we swap money for object and that’s that.

 Small wonder that the apotheosis of bargaining-type encounters is such high-risk low-confidence environment as the user-car sale and the drug deal.  Further small wonder that these encounters are most fraught with skullduggery and impasse.

 

Negotiation is more complex because it has many variables that influence its value and price:

 

1. The commodity can be changed (it’s being manufactured, modified, or custom-built).
2. The transaction’s time domain lengthens.  You sell me a car with a service warranty, I take out a car loan from your finance company.
3. The commodity may be intangible (e.g. a service) where quality of future performance cannot be guaranteed at transaction inception.
4. The commodity will be performance-dependent.  You promise to perform a service, I promise to pay you in stages.  Each of us needs the other’s goodwill throughout.
5. Bargaining is by definition two-person: you and me.  Negotiation is multi-player.
6. Bargaining is zero-sum: what I lose, you gain.  Negotiation is positive-sum: aggregate happiness can increase because things I value greatly may cost you little … and vice versa.

 Why does this matter in affordable housing?  Because each of the principal elements in any transaction, even one as simple as buying a house, has more aspects of a negotiation than of pure bargaining.  Houses come in many complex types, payments are made over long intervals.

 

Going up one level of complexity, joint ventures, partnerships, even program participation can all be seen as intangible commodities created by negotiation between providers, consumers, and funders. 

 

At the extreme end state, markets and financial ecosystems are infinite-player infinite-variable negotiations, which means they are powerfully positive-sum.  This is yet another way of explaining why capitalism works.

 

“Let’s have a cup of tea and talk about your program.”

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