Negotiation Skill and Contract Outcomes

Have you ever wondered why the same X-ray might cost $200 at one hospital and $350 at another just across town? Negotiation shapes many economic transactions, yet we know surprisingly little about why similar buyers often pay different prices for the same goods or services. In “Driving a Bargain: Negotiation Skill and Price Dispersion,” we show that differences in executives’ bargaining ability are an important source of this price dispersion.

Measuring someone’s intrinsic bargaining skill is notoriously difficult. How do you separate a manager’s personal talent from the sheer size and power of the organization they represent? We develop a novel proxy for an executive’s negotiation ability using administrative data from the Texas Department of Motor Vehicles where we observe the price negotiated for every vehicle sale in the state for the last decade. In this sample, we can identify hospital managers and calculate how effectively they negotiate a good price relative to everyone else buying the same make, model, and trim in the same month, controlling for the dealership.

This "negotiation skill" (NS) measure is persistent across vehicle purchases and other assets. If you’re good at getting a deal on a Honda Accord, you’re more likely to get a deal on your next car as well as do better in real estate investing. Interestingly, this skill has nothing to do with innate intelligence or general leadership abilities, but seems to be a result of familial factors and formative experiences. It’s a portable skill that stays with a person whether they are on a car lot or in a boardroom. 

When we translate this bargaining ability to the corporate world, the implications for the healthcare industry are profound. By linking our car-buying NS measure to proprietary insurance claims data, we find that hospital managers with higher negotiation skills achieve significantly better reimbursement rates for their organizations. Our granular data allows us to observe changes in both the average level of reimbursement per unit of service as well as for specific common procedures such as x-rays. Our results show that a one standard deviation increase in a manager’s NS is associated with a 10.1% increase in the negotiated reimbursement rates for the hospital they manage. 

Our research further validates this human element by observing what happens during management turnovers unrelated to hospital performance and shifts in the local insurance market. To ensure that our findings aren’t driven by better negotiators sorting to certain hospitals, we exploit a subset of managerial departures due to natural causes, such as death or retirement. We find that the changes in negotiation skill resulting from these exogenous separations have a material impact on future negotiated prices.

We also examine how hospital managers respond to shocks in bargaining power. When a local insurance market becomes more consolidated, insurers should have more leverage to negotiate lower reimbursement rates. Consistent with this prediction, hospitals led by low-NS managers experience a significant decline in negotiated prices following insurer consolidation. In contrast, hospitals led by high-NS managers see no such decline. This diverging pattern suggests that better negotiators can shield their organizations from a loss of market power.

Through a structural modeling approach, we quantify the relative contribution of this human factor to variation in healthcare costs. We find that a significant share of the price dispersion previously attributed to differences in hospital bargaining power is explained by the heterogeneity of negotiation skills among managers. While most prior work refers to bargaining ability as an unobservable attribute, we develop a quantifiable out-of-sample measure of this skill. This allows us to provide unique evidence on the role of individuals in negotiating bilateral corporate contracts.

Ultimately, our work contributes to the understanding of human capital in the C-suite. Consistent with the evidence that agents behave similarly in personal and professional settings, we show that managers’ bargaining outcomes in their personal life serve as a powerful predictor of their professional efficacy in business-to-business negotiations. For hospital boards and stakeholders, this suggests that an executive’s negotiation acumen is a valuable managerial asset. Moreover, this asset is distinct from intellectual ability and non-cognitive skills, and it need not come with pedigree and education. This analysis highlights important tradeoffs in the market for executive talent. 

As we look for ways to understand the rising complexities of healthcare costs and price dispersion, we must recognize that the individual agent is a primary determinant of market outcomes. It is no longer sufficient to analyze the hospital as a monolith or to assume that prices are solely the result of market mechanics. One must consider the person behind the contract. In the high-stakes environment of medical contracting, the individual's ability to drive a bargain is a fundamental driver of the prices we pay.

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Kristine W. Hankins is the William E. Seale Professor of Finance at the University of Kentucky.

Tong Liu is the Judy C. Lewent (1972) and Mark Shapiro Career Development Assistant Professor of Finance and an Assistant Professor of Finance at the MIT Sloan School of Management.

Denis Sosyura is the James and Elizabeth Robertson Professor of Finance at Arizona State University (ASU) and an ECGI Research Member

This blog is based on a paper presented at the 2026 Corporate Governance Symposium and John L. Weinberg/IRRCi Research Paper Award Competition on 6th March 2026. Visit the event page to explore more conference-related blogs.

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