A Law School think tank is refining a new way of debating public policy and settling disputes that proponents say is ultimately more effective and more democratic than normal governmental channels.

Under the so-called Negotiated Investment Strategy, representatives of all groups affected by a public policy decision work together to find the best solution to government problems. While the concept sounds simple, it is only slowly being accepted by bureaucrats and elected officials familiar with it.

The team developing the concept is just coming off the first major test of its strategy, which participants are calling an important success, and tomorrow the group will be formally awarded a $75,000 state contract. Working with the Massachusetts Department of Social Services, the Public Dispute Project of the Program on Negotiation will be the first to use the strategy on a statewide basis.

The Harvard-based Program on Negotiation--headed by Williston Professor of Law Roger Fisher is a university consortium designed to advance the theory and practice of conflict resolution. Members of the group have been at the forefront on developing the new negotiating technique, which has been put to its first real test over the past year in nearby Malden, a crowded, working class industrial city of 53,000 generally skeptical of Ivy League planning.

But for the past decade Malden has struggled with a web of increasingly tangled financial and social problems and decided to use the Negotiation Project's technique to tackle them all at the same time

Malden Mayor Thomas H. Eallon first got wind of the approach when he heard the executive director of the project. MII professor Lawrence Susskind speak at a Kennedy School conference for newly elected mayors. He has said the concept interested him because as a new mayor it would allow him to work with a large constituency and study a wide range of issues simultaneously

Susskind himself first encountered the concept called a Negotiated Investment Strategy (NIS) about five years ago when it was first being developed. He mediated a negotiation over finances between the federal, state and local governments in Columbus. Ohio, but he says he was not completely satisfied with the way the negotiations transpired.

He says he had been looking for ways to improve the method and was looking for a test case when Fallon approached him. However, Susskind and his aides emphasize that they were not attempting to solve Malden's problems for the city, but they were merely showing the people there how to do it themselves

The whole key to the project was going in and convincing Malden that they could deal with these issues themselves," says Denise T. Madigan, staff coordinator for the project

The Malden project used three negotiating teams representing the major constituencies in the community: the city government, businesses and residents, with Susskind acting as mediator.

The groups met separately and together to discuss the city's problems and hammer out solutions to an array of city problems. The issues considered ranged from the school system and taxes, to urban renewal and improving police protection, to simply sprucing up the city's image away from that of a run-down industrial area.

The general idea is to let people from different constituencies understand better the concerns of counterparts in other constituencies. "The process was very effective for it made everyone realize how things go in government," says Malden City Planner Edmund P. Tarullo.

Bernard Rotondo, manager of human resources at Data Printer Corp.--Malden's largest employer--adds. "It was a very positive experience because it gave me and other members of the business community the chance to work with a lot of people we never get to meet." Rotondo headed the business team during the negotiations.

After a year of negotiations, the result was an inch-thick document containing 148 specific and general recommendations for the city. It was signed by all the teams at an official ceremony June 23.

Although participants admit they sometimes felt they were biting off more than they could chew by considering such a wide range of issues, they say that as their negotiating skills developed they were able to deal with a wide variety of issues systematically and efficiently. They point to the program as a successful example of cooperation, the result of which is a workable blueprint for improving the city

The project is not, however, without its detractors. Since the negotiators have no legal authority to enact their recommendations many observers are reserving judgement on the project until it produces significant results. A handful are even more critical, calling the study frivolous and off base

Everyone agrees that the most serious problem facing Malden is financial. A 1982 study by a team of University of Massachusetts, Amherst economists showed the city was teetering on the brink of financial failure because of declining Federal aid a shrinking tax base, a high demand for services and poor management.

"Without some form of intervention in the near future. Malden faces a severe financial future," concluded the report. The coordinator of that study, Catherine T. Flynn, said of the 20 cities and towns her group has analyzed, "Malden was by far the worst."

Hence, the most controversial point of the final agreement concluded last month was a recommendation that city voters approve a one year override of Proposition 2 1/2, the 1980 statewide referendum which limited property taxes to 2 1/2 percent of assessed value

In 1980 Malden residents voted for the referendum two to one. But the negotiated agreement states: "With full understanding of the implications, Malden residents should consider voting to override Proposition 2 1/2 for one year as a means of capturing the increased revenues made available by increase in property values."

The override is perhaps the most extreme example of what critics cite most frequently--the difficulty of implementing the group's proposals

The NIS negotiators have no legal authority to enact their recommendations and many, including key members of the project, are uncertain how many of the ideas will actually come to fruition

"What happens is that you revert to your roles I'm back doing what I do. The citizens are back doing what they do and the city is back doing what it does, and that's where the whole thing can fall down," says Rotondo

"Implementation that's going to be the bugaboo," he adds. "I think there needs to be a lot more thinking to make these things work."

Still only a small fraction of the proposals will actually cost anything, and according to Tarallo, fundraising for some, such as a clean-up fund for the city are already underway. Malden's annual budget is approximately $40 million, but the city is already beginning to reorganize its finances and is beefing up its lobbying efforts on Beacon Hill to secure more state and, he adds.

For the recommendations not requiring city funds, implementation has been largely left up to the negotiators, and they say the key to seeing the plan through is educating their neighbors.

They say they must continue their efforts to urge citizens and government officials to accept their recommendations. These range from requiring parents of high school students to sign a statement saying they have read the course selection pamphlet and discussed their children's selections with them to urging the city and local civic organizations to give awards for beautification and improvement to property owners.

Those asked to implement the recommendations by and large seem willing, but some question their usefulness. For instance, Superintendent of Malden Schools Paul Phaneus says he is amenable to most of the suggestions, but says. "I wasn't too impressed by [the project]. I don't think anyone is taking this too seriously

He cites as an example the NIS recommendation that: There should be greater publicity given to the ways in which the schools make financial decisions. Citizens should be encouraged to use this information and increase their understanding of the school's budget process

Phaneus says all of the School Committee's budget meetings are open to the public and advertised in the local newspapers but that few citizens ever attend. "Hell, they just don't attend the budget meetings. The people who are saying this are the ones we never see," he says

Susskind says cynicism like Phaneus's is the biggest obstacle to the NIS' success. He says that people are too quick to assume the project cannot work and let the gams carried so far fall by the wayside. "It's going to take a lot more successes to convince people that this kind of thing can work," he says

To bring about that change, advocates of the strategy must overcome what J. William Breslin, the executive editor of the Malden Evening News during the project, characterizes as the Malden mentality, which he says is "a combination of apathy and suspicion of outsiders."

He says that in the early stages of the negotiations many of the team members were skeptical of the project, but, as they began to work, enthusiasm built. Breslin, who is now the director of publications for the Project on Negotiation, notes that many of Malden's residents remain uninformed about the city's problems and must be better informed before they will support some of the recommendations

To help in that education, NIS team members must continue to organize support for the project even though their formal role is largely over participants say. Susskind is confident there is enough momentum from the project to carry it through, but most observers are taking a want and see attitude. The beautification work is the most noticeable result of the project to date, and most are reserving judgement to see how many of the other proposals actually come to fruition