Posted in Finance, Accounting and Economics Terms, Total Reads: 39
Definition: Zone of Possible Agreement
Zone of Possible Agreement, or ZOPA, is a zone or a range wherein the two entities discussing with each other come to a mutual settlement. In this range, both the parties agree to the terms and conditions of their deal and finally the deal is completed and the agreement is made. Zone of Possible Agreement, is the area where parties negotiate/bargain with each other in order to maximize their benefit from the deal and finally come to a consensus to strike the deal.
Outside ZOPA, no negotiation can lead to an agreement. Hence, understanding to ZOPA is very crucial in order make successful agreements. In order to identify ZOPA, both the parties should know each other’s values and interests, and should work towards a common goal which incorporates interest of both the parties. In this manner both the parties are benefitted by the deal.
The pictorial representation of ZOPA is as shown above.