Advanced negotiation: does threatening a penalty strengthen commitment?
In a negotiation, providing for a sanction often seems more rigorous than relying on goodwill. Yet the managerial question is more precise: does announcing a penalty strengthen commitment, or turn an obligation into something that can be bought?
What the literature establishes
Uri Gneezy and Aldo Rustichini (2000, The Journal of Legal Studies) studied the introduction of a fine for parents collecting their children late from day-care centres. The fine was followed by an increase in late arrivals, which did not disappear when it was removed. This finding contradicts the idea that adding a monetary cost to non-compliance necessarily discourages it.
A sanction also changes the message
Ernst Fehr and Bettina Rockenbach (2003, Nature) experimentally studied cooperation in a trust game that included the option of imposing a sanction. Their findings show that sanctions associated with an intention perceived as unfair can reduce voluntary cooperation; choosing not to impose an available sanction can instead support it. A threat therefore communicates more than a financial consequence: it also tells the other party something about the relationship being proposed.
The hasty conclusion
One might conclude that penalties should be removed from agreements, but these studies do not justify that rule. A clause may still be necessary to allocate risk, protect an essential service or specify the consequences of non-compliance. The useful distinction is between contractual protection and the behavioural effect expected of it: the former does not guarantee the latter. (our executive and employee training programmes)
The limits of the evidence and current practice
A day-care field experiment and a trust game reproduce neither public procurement constraints nor those of an industrial contract. They cannot establish an optimal penalty amount or predict its effect in every negotiation. Conversely, a practice that judges a clause solely by its severity overlooks how it is understood: as a guarantee of reliability, a sign of distrust or an acceptable price for non-compliance.
A practical check in Berne
Within SHR’s ‘Advanced Negotiation’ programme, an exercise could compare two versions of the same clause: a penalty alone, and that penalty accompanied by its rationale and a mutual early-warning procedure. In Berne, scenarios could involve a service for the federal administration, public health supplies, telecom service continuity or the delivery of precision components. Keeping economic conditions identical and allocating versions randomly, measure the proportion of participants who agree to flag a risk before a breach, then ask them to explain in their own words what the penalty permits or prohibits. This comparison tests interpretation and a stated commitment, not future reliability, which must be monitored separately in contracts actually concluded. To go further: explore the Advanced Negotiation training in Bern in the canton of Bern, or browse our executive and employee training programmes in Switzerland.
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