EVL and Power: Study Notes

What is Politics?

  • Politics is the subset of human behavior that involves the use of power or influence.
  • Power is involved whenever individuals can’t accomplish their goals without either trying to influence the behavior of others or trying to wrestle free from the influence exerted by others.

Power, Power Sources, and When It Is Used

  • The core questions: Who has power, where does it come from, and when is it used?

Citizen Reactions to Negative Change in Environment

  • Examples of negative changes:
    • The government increases taxes.
    • The government imposes a ban on handguns.
    • The Supreme Court rules that prayer in public schools is unconstitutional.
    • The quality of peaches at the local fruit stand declines.

Exit, Voice, Loyalty (EVL) Framework

  • Exit: Accept the negative change but alter one’s behavior to optimize in the new environment.
  • Voice: Do not accept the negative change and seek to ‘persuade’ the government to reinstate the original environment.
  • Loyalty: Accept the negative change and make no change to one’s pre-existing behavior.

Table 3.1 — Exit, Voice, and Loyalty (EVL) Responses

  • Government increases taxes:
    • Exit: Reallocate portfolio to avoid tax increase
    • Voice: Organize tax revolt
    • Loyalty: Continue to pay taxes, keep your mouth shut
  • Decline in peach quality:
    • Exit: Buy mangoes, or peaches elsewhere
    • Voice: Complain to the store owner
    • Loyalty: Continue to eat peaches, keep your mouth shut
  • Supreme Court rules prayer unconstitutional:
    • Exit: Homeschool your children
    • Voice: Lobby the government to change the Constitution
    • Loyalty: Keep your children in the public school system, keep your mouth shut
  • State outlaws handguns:
    • Exit: Move to a different state
    • Voice: Join the NRA or a militia group to pressure the state
    • Loyalty: Turn in your handguns, keep your mouth shut

Table 3.2 — Turning Outcomes into Payoffs

  • Outcomes and their payoffs (Citizen, Government):
    • O1: The government keeps the benefit but loses the citizen’s support; the citizen opts for a substitute. (E, 1)(E,\, 1)
    • O2: The government keeps the benefit and support; the citizen suffers the loss in silence. (0, 1+L)(0,\, 1+L)
    • O3: The government returns the benefit and keeps support. (1−c, L)(1-c,\, L)
    • O4: The government keeps the benefit but loses citizen support after the citizen uses voice. The citizen opts for a substitute. (E−c, 1+L)(E-c,\, 1+L)
    • O5: The government keeps the benefit and support after voice; the citizen suffers the loss. (−c, 1+L)(-c,\, 1+L)

Notes:

  • E = citizen’s exit payoff; 1 = value of the benefit taken from the citizen by the government; L = government’s value from a loyal citizen who does not exit; c > 0 = cost of using voice.

Table 3.3 — Summary of Subgame Perfect Equilibria and Outcomes

  • Scenario 1: Government is dependent (L > 1) with a credible exit threat (E > 0) and the equilibrium outcome is (Voice, Exit; Respond).
  • Scenario 2: Government is dependent (L > 1) with no credible exit threat (E < 0); equilibrium is (Loyalty, Loyalty; Ignore).
  • Scenario 3: Government is autonomous (L < 1) with a credible exit threat (E > 0) and E < 1 − c; equilibrium is (Exit, Exit; Ignore).
  • Scenario 4: Government is autonomous (L < 1) with a credible exit threat absent (E < 0); equilibrium is (Loyalty, Loyalty; Ignore).

Subgame Perfect Equilibrium (SPE) and Backward Induction

  • A rational player does what they believe is in their best interest given what they know at the time.
  • A subgame perfect equilibrium is an important solution concept for extensive form games in which all actors do the best they can at every point where they could possibly make a decision.
  • Backward induction: Reasoning backward from the end of the game to determine an optimal course of action.

Assumptions for Solving the EVL Game

  • Assumption A: Citizen has a credible exit threat (E > 0) and Government is dependent (L < 1).
  • Basis for analysis: Compare exit, loyalty, and voice choices by considering how the government would respond to voice and the citizen’s exit options.

Solving the EVL Game — Step 1 (Credible Exit Threat, Dependent Government)

  • Step 1: With E > 0 and L > 1, the relevant payoff configurations yield the following immediate outcomes:
    • Scenario 1: Voice, Exit; Respond
    • Ignore and Exit options available depending on the subgame continuation

Solving the EVL Game — Step 2 (Credible Exit Threat, Highly Dependent)

  • Step 2: If E > 0 and L > 1 still holds, update beliefs about government response and refine to:
    • Scenario 1 remains consistent with backward induction leading to Voice, Exit; Respond

Solving the EVL Game — Step 3 (Credible Exit Threat, E < 1 − c)

  • Step 3: If E > 0, L > 1, and E < 1 − c, the subgame perfect equilibrium is: (Voice,Exit;Respond)(Voice, Exit; Respond)
  • Scenario 1: Loyalty payoff adjustments align with Voice and Exit; Citizen’s outcome is 1 − c against government 1 + L.

Solving the EVL Game — Step 4 (Credible Exit Threat, E < 0)

  • Step 4: If E < 0 and L < 1, the subgame perfect equilibrium is (Loyalty, Loyalty; Ignore).
  • Observed outcome: The citizen remains loyal; payoffs: citizen 0, government 1 + L.

Solving the EVL Game — Summary of Scenarios

  • When a credible exit threat exists and the government is dependent (E > 0, L > 1): SPE is typically (Voice, Exit; Respond).
  • When there is no credible exit threat and the government is dependent (E < 0, L > 1): SPE is (Loyalty, Loyalty; Ignore).
  • When there is a credible exit threat and the government is autonomous (E > 0, L < 1) with E < 1 − c: SPE is (Exit, Exit; Ignore).
  • When there is no credible exit threat and the government is autonomous (E < 0, L < 1): SPE is (Loyalty, Loyalty; Ignore).

Practical Takeaways and Implications

  • The model shows that a citizen with a credible exit threat can influence government behavior only if the government is dependent; otherwise, autonomy reduces responsiveness.
  • A credible exit option alone does not guarantee influence; the structure of dependence matters for positive responses to voice.
  • The collective action problem can complicate mobilization, even if individuals could theoretically influence outcomes.
  • Real-world power is often not observable; power use (e.g., veto) does not always reveal citizen preferences, and some power dynamics depend on structural factors like capital dependence and cross-sector economic interests.

Why Governments May Ignore Voice

  • The model suggests voice is used when it is effective, but in practice:
    • Voice may be a net benefit for citizens rather than a cost.
    • Information may be incomplete; power is not always observable.
    • Structural and political incentives can dampen responsiveness even when protests occur.

Connections to Real-World Relevance

  • Structural dependence of the state on capital and other economic sectors can shape who bears the cost of protests and who benefits from policy changes.
  • Historical instances (e.g., large bailouts) illustrate complex power dynamics where power is not always exercised or observed in straightforward ways.

Key Concepts to Remember

  • EVL framework: Exit, Voice, Loyalty as three possible citizen responses to adverse changes.
  • Payoffs in EVL: EE = exit payoff; LL = value of loyalty to government; c > 0 = cost of using voice; payoff variables for outcomes: O1exttoO5O1 ext{ to } O5 as defined in Table 3.2.
  • Subgame Perfect Equilibrium (SPE): A refinement of Nash equilibrium for dynamic games achieved via backward induction.
  • Conditions for positive government response to voice: credible exit threat and dependence (i.e., E > 0 and L > 1).
  • Power and observability: Power is not always observable; voice does not perfectly reveal preferences; structural factors shape outcomes.