[This paper proposes that interactions in accounting and auditing can be viewed as a large negotiation system. We define negotiations broadly to include any context in which two or more parties with differing preferences jointly make decisions that affect the welfare of both (all) parties. After a brief overview of negotiation research, the paper: (1) shows how recent research in accounting and auditing has implicitly addressed various aspects of negotiations; (2) comments on the Elias (1990) and Chalos and Haka (1990) studies which appear in this issue; (3) discusses departures from decision maker rationality which may seriously affect negotiations; and (4) uses three scenarios to highlight the importance of three negotiation issues (third party processes, the coordination of work groups, and social dilemmas) in accounting. We conclude by suggesting that a multifaceted research strategy, combining theory, description, and prescription, provides the greatest potential for progress in the study of accounting and auditing negotiations.]

Abstract Proposes that interactions in accounting an auditing can be viewed as a large negotiation system. Overview of negotiation research; How research in accounting and auditing has implicitly addressed various aspects of negotiations; Departures from decision maker rationality which may seriously affect negotiation issues.

The fact that settlement rates are much higher, where final-offer arbitration rather than conventional arbitration is the dispute settlement procedure, is used as the basis of a test of the role of divergent and relatively optimistic expectations in causing disagreement in negotiations. Calculations of identical-expectations contract zones using existing estimates of models of arbitrator behavior yield larger identical-expectations contract zones in conventional arbitration than in final-offer arbitration. This evidence clearly suggests that divergent expectations alone are not an adequate explanation of disagreement in labor-management negotiations. A number of alternative explanations for disagreement are suggested and evaluated.

A general model of arbitrator behavior in conventional and final-offer arbitration is developed that is based on an underlying notion of an appropriate award in a particular case. This appropriate award is defined as a function of the facts of the case independently of the offers of the parties. In conventional arbitration the arbitration award is argued to be a function of both the offers of the parties and the appropriate award. The weight that the arbitrator puts on the appropriate award relative to the offers is hypothesized to be a function of the quality of the offers as measured by the difference between the offers. In final-offer arbitration it is argued that the arbitrator chooses the offer that is closest to the appropriate award. The model is implemented empirically using data gathered from practicing arbitrators regarding their decisions in twenty-five hypothetical cases. The estimates of the general model strongly support the characterizations of arbitrator behavior in the two schemes. In addition, no substantial differences were found in the determination of the appropriate award implicit in conventional arbitration decisions and the determination of the appropriate award implicit in the final-offer decisions.

A general model of arbitrator behavior in conventional and final-offer arbitration is developed that is based on an underlying notion of an appropriate award in a particular case. This appropriate award is defined as a function of the facts of the case independently of the offers of the parties. In conventional arbitration the arbitration award is argued to be a function of both the offers of the parties and the appropriate award. The weight that the arbitrator puts on the appropriate award relative to the offers is hypothesized to be a function of the quality of the offers as measured by the difference between the offers. In final-offer arbitration itis argued that the arbitrator chooses the offer that is closest to the appropriate award.The model is implemented empirically using data gathered from practicing arbitrators regarding their decisions in twenty-five hypothetical cases. The estimates of the general model strongly support the characterizations of arbitrator behavior in the two schemes. No substantial differences were found in the determination of the appropriate award implicit in the conventional arbitration decisions and the determination of the appropriate award implicitin the final-offer decisions.