Multiple Periods and Budget Negotiations: Cooperative and Ratcheting Behavior

Budgets in organizations are typically negotiated over repeated periods. However, much of the past budgeting research examines unilaterally set budgets in single-period settings. This study extends budgeting research by examining two issues: (1) whether the expectation of future budget negotiations with the same individual affects current period negotiation strategies and outcomes, and (2) changes in negotiation strategies and outcomes across periods. The results indicate that an expectation of future budget negotiations affect current period negotiation strategies and outcomes in a manner consistent with superiors and subordinates who expect future budget negotiations focusing on the benefits from acting cooperatively, rather than competitively. The results are not consistent with superiors and subordinates who expect future budget negotiations focusing on the incentives arising from ratcheting (Weitzman, 1980). The results also indicate that the difference in superiors’ and subordinates’ initial negotiation positions decrease across period, leading to a greater likelihood of negotiation agreement across periods. These results suggest that some problems identified in prior budgeting research using single-period settings may not generalize to the more common multi-period setting. Thus, our study highlights the importance of future budgeting studies using multi-period settings. The finding that cooperative incentives dominate ratcheting incentives provides evidence that analytical models, such as Weitzman (1980), ignore important determinants of behavior.