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        The British Academy Brian Barry Prize Essay: An Exit, Voice and Loyalty Model of Politics
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        The British Academy Brian Barry Prize Essay: An Exit, Voice and Loyalty Model of Politics
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Abstract

Political scientists typically develop different models to examine distinct political phenomena such as lobbying, protests, elections and conflict. These specific models can provide important insights into a particular event, process or outcome of interest. This article takes a different tack. Rather than focus on the specificities of a given political phenomenon, this study constructs a model that captures the key elements common to most political situations. This model represents a reformulation and extension of Albert Hirschman’s famous Exit, Voice and Loyalty framework. To highlight the value that comes from focusing on the commonalities that exist across apparently disparate political phenomena, the article applies the model to several issues in the democratization literature related to modernization theory, the political resource curse, inequality, foreign aid and economic performance.

Footnotes

*

Department of Political Science, Texas A&M University (email: wrclark@tamu.edu); Department of Political Science, Pennsylvania State University (email: mgolder@psu.edu); Department of Political Science, Pennsylvania State University (email: sgolder@psu.edu). We thank Xun Cao, Charles Crabtree, Ronald Inglehart, Will Moore, Paul Poast, Christopher Reenock, David Siegel, Jeffrey Staton, David Wiens, Joseph Wright and Boliang Zhu for their helpful comments. We also thank audiences at Binghamton University, Florida State University, Rice University, Stanford University, the University of California, Berkeley, the University of Mannheim, the University of Michigan, the 2013 Annual Meeting of the American Political Science Association and the 2013 Annual Meeting of the European Political Science Association. Finally, we acknowledge support for this project from the Research Center (SFB) 884 ‘Political Economy of Reforms’, funded by the German Research Foundation (DFG). Online appendices are available at https://doi.org/doi:10.1017/S0007123416000442.

Political scientists typically develop different models to examine distinct political phenomena such as lobbying, protests, elections and conflict. Each of these specific models can provide important insights into a particular event, process or outcome of interest. In this article we take a different tack. Rather than focus on the specificities of a given political phenomenon, we construct a model that captures the key elements common to most, if not all, political situations. In doing so, we seek to highlight the value that comes from recognizing the commonalities that exist across apparently disparate political phenomena.

Politics has been defined in many different ways over the years. Most definitions agree that it comprises the subset of human behavior that involves the use of power. Broadly speaking, power is involved whenever individuals cannot accomplish their goals without either trying to influence the behavior of others or trying to wrestle free of the influence exerted by others. The model of politics that we introduce emphasizes the strategic interdependencies involved in the use of power.

Our model represents a reformulation and extension of Hirschman’s famous Exit, Voice and Loyalty (EVL) framework.Footnote 1 Hirschman’s ideas have sparked enormous interest among political scientists that continues to this day.Footnote 2 Our analysis, though, is unusual in that it explicitly formalizes his conceptual framework in game-theoretic terms. The failure of Hirschman and others to formalize the EVL framework has contributed to much theoretical confusion and inconsistent empirical results.Footnote 3

To our knowledge, Gehlbach provides the only other game-theoretic model of Hirschman’s EVL framework.Footnote 4 While there are several differences between our models, the principal one has to do with how closely we hew to Hirschman’s original argument. This is most clearly seen in how we treat loyalty. Gehlbach faithfully follows Hirschman in assuming that actors have two potential responses when confronted with a deleterious change in their environment – exit or voice – and that loyalty is a psychological characteristic that increases an actor’s propensity to choose voice over exit. In contrast, we deviate from Hirschman’s original argument by building on an influential and well-established line of research that treats loyalty as a potential behavioral response in its own right, on a par with exit and voice. In other words, our models do not so much compete as offer two different conceptualizations of the EVL framework.Footnote 5

The dominant approach in studies that treat loyalty as a behavioral response has been to assume that individuals have four possible responses when confronted with a deterioration in their environment – exit, voice, loyalty and neglect (EVLN). Originally employed to explore how individuals respond to discontent in love, marriage and workplace relationships,Footnote 6 the EVLN framework has subsequently been used to examine responses to dissatisfaction in a wide variety of settings, including service provision in local governmentsFootnote 7 and performance in urban schools.Footnote 8 This line of research is largely descriptive and social-psychological in nature.Footnote 9 In addition to building a taxonomy of reactions to dissatisfaction, empirical studies typically seek to correlate responses to discontent with personality traits and psychological dispositions. Actors’ behavioral responses are often viewed through an ethical or normative lens, with loyalty and neglect, for example, treated as constructive and destructive responses, respectively.

Our approach differs from the EVLN framework in at least three significant ways. First, whereas studies employing the EVLN framework focus almost exclusively on the behavioral choices of the actor who is dissatisfied with some aspect of a relationship, our model explicitly incorporates the strategic interaction that occurs between actors on both sides of a relationship. This is important because it enables us to better evaluate the conditions under which actors can exert influence over others. The second difference is that the actors in our model have only three possible responses to a deleterious change in their environment: exit, voice or loyalty. These responses are both mutually exclusive and logically exhaustive. From our perspective, neglect is simply a form of exit and not a distinct behavioral response category. The third major difference is that we eschew the normative and social-psychological foundation underpinning much of the EVLN framework. The actors in our model who demonstrate loyalty, for example, do so not because they wish to respond constructively to dissatisfaction, but because they are simply powerless to do otherwise.

Our EVL model of politics is quite general. Among other things, it indicates the necessary conditions for actors to exert power over others, it helps explain when actors will endogenously limit their own predatory behavior, and it highlights the difficulties of drawing inferences about power from real-world observations. We illustrate these points by focusing on the generic balance of power between citizens and their governments. Our analysis draws attention to several issues that are relevant to the study of power across the political science subfields. To highlight how our model can capture commonalities across apparently disparate political phenomena in a specific substantive realm, we apply it to several issues in the democratization literature related to modernization theory, the political resource curse, inequality, foreign aid and economic performance. Among other things, our model offers a potential explanation for why inequality does not necessarily harm democratization, why foreign aid tends to deter democratization but can sometimes promote limited democratic reforms and why economic performance in dictatorships is much more heterogeneous than in democracies.

AN EVL MODEL OF POLITICS

Hirschman asks how an individual will react to a deleterious change in her environment. While he conceived of this deterioration as accidental or random, we choose to think of it as resulting from a deliberate choice by some actor. Specifically, we assume it results from a policy choice made by an incumbent government. For example, the government might choose to increase taxes, cut services or devalue the currency. Naturally, not all citizens will view such policy choices in a negative light. While consumers in the domestic market, for instance, are likely to suffer when the national currency is devalued because imports are more expensive, exporters are likely to benefit because their goods are now more competitive. Indeed, political choices almost always result in some individuals benefiting at the expense of others. The question here, though, is how a citizen will respond to a government policy that negatively affects her welfare.

Broadly speaking, a citizen has three possible responses – exit, voice or loyalty. Choosing to exit means that she accepts the deleterious change but alters her behavior to optimize her outcomes in the new environment. While the physical exit of citizens, as took place in East Germany in 1989 and is happening in Syria today, is the most dramatic and tangible form of exit, it is important to emphasize that we conceive of exit as occurring any time a citizen denies the government her loyalty. Depending on the situation, exit can take the form of voting against the incumbent or abstaining, re-allocating financial assets in response to a tax hike, substituting leisure for labor or sending one’s child to a private school. Choosing to use voice means that the citizen does not accept the deleterious change and instead seeks to ‘persuade’ the government to reinstate her original environment. For example, a citizen might respond to a tax hike by participating in an anti-tax protest or a letter-writing campaign with the goal of pressuring the government into reversing its tax increase. Choosing to demonstrate loyalty means that the citizen accepts the deleterious change and does not alter her pre-existing behavior.Footnote 10 For example, the citizen might respond to a tax hike by paying the new tax rate and continuing to allocate her assets in the same way as before.Footnote 11

Behavior is political whenever individuals attempt to influence, or escape the influence of, others. Voice is inherently political because the objective is to change the behavior of others. Behavior, though, is also political whenever individuals think about using voice even if they do not do so in the end. If an individual would benefit from the successful use of voice but instead chooses to exit or remain loyal, then the situation is political as the government has exercised sufficient resolve to deter the individual’s use of voice. In effect, the decision to respond to a deleterious change with exit, voice or loyalty is always a political decision.Footnote 12 Politics does not just begin when voice is chosen; it begins when voice is considered. One could argue that politics is even more pervasive than this. People sometimes choose to exit or remain loyal without even thinking of voice as an option simply because it would not occur to them that they could successfully change the behavior of others. This type of situation might be referred to as ‘hegemony’.Footnote 13

Structure and Payoffs

Consider a situation in which the government introduces a policy that negatively affects one of its citizens (or a group of citizens).Footnote 14 The citizen can respond by exiting, using voice or remaining loyal. Obviously, much depends on what the citizen expects the government to do if she uses voice. The government might respond positively by reversing its policy change and returning the citizen’s environment to its original state. Alternatively, the government might ignore her use of voice, at which point the citizen must decide whether to exit or remain loyal. This situation is modeled as an extensive form game in Figure 1.

Fig. 1 EVL game Note: E is the citizen’s exit payoff, 1 is the value of the benefit that the government takes from the citizen in the pre-history of the game, L is the value the government obtains from having a loyal citizen who does not exit, and c is the citizen’s cost of using voice. It is assumed that c, L>0.

The pre-history of the game is that the government has caused a deleterious change in the citizen’s environment, resulting in a transfer of some benefit from the citizen to the government. Without loss of generality, we set the value of this benefit to 1. The game begins with the citizen deciding how to respond. If the citizen decides to exit, she receives her exit payoff, E, and the government gets to keep the benefit, 1, that it seized in the game’s pre-history. Citizens naturally differ in the attractiveness of their exit options. Skilled workers, for example, are likely to have a more valuable exit option than unskilled workers since they can more easily switch careers if there is a negative change in their work environment.

If the citizen decides to remain loyal, she accepts the loss of her benefit and receives her status quo payoff, which we normalize to 0. In these circumstances, the government keeps the benefit, 1, that it seized, but also obtains an additional payoff, L>0, for retaining a loyal citizen who does not exit. This additional payoff recognizes that governments value loyal citizens. Loyal citizens can help governments by supplying them with the political support necessary to retain power or by providing them with what some might call ‘legitimacy’. For example, the decision to remain loyal might mean continuing to vote for government parties. Loyal citizens can also be valuable in other ways, perhaps because they continue to invest in the economy or other activities that provide meaningful resources to the government. For instance, one can think of the loyalty payoff as capturing the present value of the future stream of benefits that accrue from having a citizen continue to invest her assets in the economy. Whatever the precise source of this loyalty payoff, its value is likely to vary across governments and citizens. Some governments desire more support from their citizenry than others, and some citizens are more valuable to government officials than others.

If the citizen decides to use voice, then she pays a cost, c > 0. We assume that voice is costly because activities like protesting, complaining and lobbying all require effort that could be put to an alternative use. Voice might be costly in other respects as well. For example, one’s involvement in a protest might be met by imprisonment, loss of employment or even death. In other words, the degree of government repression will influence the citizen’s cost of using their voice. It is reasonable to think that the citizen’s use of voice will impose a cost on the government, and that the magnitude of this cost will vary depending on the particular type of voice used. However, we choose not to incorporate this imposed cost into the EVL game shown in Figure 1 because the fact that it would be added to all of the terminal nodes associated with the only subgame in which the government gets to move means that it would not affect the government’s decisions.

If the citizen uses voice, the government must decide whether to respond positively to her demands or ignore them. If the government responds positively, it returns the benefit it seized to the citizen. In this situation, the citizen receives the value of the benefit, 1, minus the cost of having used her voice, c, while the government obtains a loyal citizen, L. If the government ignores her use of voice, then the citizen chooses to either exit or remain loyal. We could allow the citizen to use voice again, but this would add nothing new to the game and our inferences would be unaffected. If the citizen decides to exit, she receives her exit payoff, E, minus the cost of having used voice, c, while the government gets to keep the benefit, 1, it seized. And if she chooses to remain loyal, the citizen accepts the loss of her benefit, 0, but has to pay the cost of having used voice, c, while the government gets to keep both the benefit, 1, and a loyal citizen, L.

Equilibria and Interpretation

Solving the game through backward induction yields four subgame perfect Nash equilibria, which are shown in Table 1.Footnote 15 The outcome depends on the government’s type, the citizen’s type, and whether voice is a realistic option. There are two types of government: those that are dependent and those that are autonomous. If L>1, the government is dependent on the citizen in that it values the citizen’s loyalty more than the benefit it took from her. And if L ≤ 1, the government is autonomous in that it values what it seized at least as much as the citizen’s loyalty. To illustrate this distinction substantively, consider a situation in which the citizen has an asset she is investing in the economy. Unlike an autonomous government, a dependent government values the citizen’s continued investment more than what it would obtain from simply taking the citizen’s asset today. Note that government dependence and autonomy are specific to a particular government and a particular citizen (or group of citizens). The fact that a government is dependent on a particular group of citizens says nothing about the dependence of that government on societal groups more generally, nor does it suggest that other potential governments are necessarily dependent on this same group of citizens.

Table 1 Equilibria in the EVL Game

Note: the equilibria are written in the following form: (citizen’s first action, citizen’s second action; government’s action). Proofs are shown in the online appendix.

There are two types of citizens: those that have a credible exit threat and those that do not. If E≤0, the citizen has no credible exit threat in that she will never choose to exit because she can always do at least as well by remaining loyal. If E>0, the citizen has a credible exit threat in that she might exit given that her exit payoff is greater than her loyalty payoff.

Finally, there are two types of scenarios: one in which the use of voice is a realistic option for the citizen and one in which it is not. If E>1−c, the citizen’s exit payoff is so great that she would never use voice even if she were certain that it would be effective – that is, exit is always preferred to having the government respond positively to her use of voice. If E≤1−c, the citizen might use voice since the value associated with the successful use of voice is at least as great as that from exiting.

Several insights can be discerned from our model so far. First, the government only responds positively to a citizen when she has a credible exit threat and the government is dependent on her.Footnote 16 Hirschman differs on this point. He claims that “the exit option is widely held to be uniquely powerful; by inflicting revenue losses on delinquent management, exit is expected to induce that ‘wonderful concentration of mind’ akin to the one Samuel Johnson attributed to the prospect of being hanged.”Footnote 17 One might infer from this claim that firms always respond positively when faced with customers who can exit. This inference, though, implicitly assumes that firms always depend on their customers. While this assumption is debatable in the economic sphere, we relax it in our model by allowing governments to depend on some citizens more than others. We do this because the potential for unequal influence is central to the study of politics.

In line with Hirschman, many scholars have argued that credible exit threats or outside options provide actors with bargaining leverage, and hence power.Footnote 18 However, as our model clearly demonstrates, a credible exit option, while necessary to exert power, is not sufficient. Individuals who have a credible exit threat are certainly advantaged over those who do not, as they have the realistic option of exiting if there is a deleterious change to their environment. However, the mere existence of a credible exit threat does not automatically give an individual the ability to exert influence over another actor. An autonomous government never responds positively to the use of voice even if the citizen has a credible exit threat.

It is the citizen’s credible exit threat that makes the effective use of voice possible. A dependent government responds positively only because it knows that the citizen will exit if it ignores her use of voice. Hirschman has this causal logic backwards when he writes that ‘the decision whether to exit will often be taken in the light of the prospects for the effective use of voice’.Footnote 19 Our model indicates that the effectiveness of voice depends on the prospects of a credible exit, not the other way around. As Lake and Baum put it, ‘Without the possibility of exit, voice carries little weight.’Footnote 20 Note, though, that citizens may choose not to force governments to respond positively to them even if they are in a position to do so. If the cost of using voice, c≥1, or the citizen’s exit payoff, E>1−c, is sufficiently large, then the citizen will prefer to exit rather than use her voice to force the government to respond positively (see Equilibrium E3). This helps to explain why wealthy individuals living under repressive regimes often choose to leave rather than use their voice to force the government to back down, and why it is tragic when wealthy parents with the capacity to force public schools to reform instead send their children to private schools.Footnote 21

Second, our model reveals that the citizen is an easy target in the absence of a credible exit option: the government can take away her benefits and there is nothing she can do about it but accept the new status quo. Note that the benefits the government seizes can be thought of in several ways. It could be that the government has denied the citizen some of her civil rights. Alternatively, it could be that it has taken property away from the citizen, either through taxation or appropriation. To this point, we have implicitly assumed that the government has seized something that in some sense rightfully belonged to the citizen. However, this need not be the case. For example, it could be that the government has taken away the citizen’s ability to seize an unfair advantage over other citizens. There is thus nothing inherently good about the government being responsive to the citizen’s use of voice. Nor is it necessarily problematic if the government ignores the citizen’s demands. In fact, the demands of some citizens are often referred to as ‘special interests’, and government officials are as likely to be applauded as criticized for ignoring them.

Third, our model highlights some limitations that scholars face when drawing inferences about power from real-world observations. On the one hand, it is always possible to infer the citizen’s type from her actions. This is because the decision to exit or use voice requires a credible exit threat, whereas the decision to remain loyal implies the absence of such a threat. On the other hand, it is not as easy to infer the government’s type through simple observation. Suppose one observes the citizen exit. She may exit because she knows the government is autonomous and would ignore her demands. However, it may also be the case that she exits because her exit payoff, or the cost of voice, is very large, even though the government is dependent and would respond positively to her demands if they were voiced. Similarly, it is not possible to determine whether the government is dependent or autonomous when the citizen demonstrates loyalty. This is because both government types ignore citizens who lack credible exit threats. Thus one should not infer that governments that experience little use of voice by their citizens, such as those in China or North Korea, are autonomous and do not rely on citizen support to stay in power. These governments may well depend on their citizens, yet feel free to ignore them because their citizens lack credible exit threats.

The collapse of the communist regime in East Germany in 1989 bears this out. East Germans had, to a large extent, demonstrated loyalty throughout the post-war period, and most observers at the time considered the communist regime to be stable and relatively autonomous from its citizens.Footnote 22 This all changed with the opening of the Hungarian border to Austria in May 1989. For the first time since the construction of the Berlin Wall in 1961, East Germans now had a credible exit option.Footnote 23 This change transformed the ‘loyal’ East German population into enthusiastic protesters who noisily voiced their demands on the streets of Leipzig and East Berlin. The fact that the East German Communist Party eventually responded to these protests by opening the Berlin Wall revealed to everyone that it was, in fact, dependent on the support of its citizens. This historical example should make one wary of inferring that a regime is autonomous when its citizens have no credible exit threat.

Similarly, our model indicates that it is inappropriate to use evidence of voice, or the lack thereof, as a straightforward indication of citizen preferences. There are at least two reasons why citizens might be silent on a particular issue. One the one hand, it could be that they are satisfied with the status quo. On the other hand, it could be that they are dissatisfied but do not expect their voice to be effective. Hirschman claims that the decision to remain loyal is ‘less rational’ than the decision to exit or use voice, and that those who choose loyalty do so either because they ‘are confident that things will soon get better’ or because they have a ‘special attachment to an organization’.Footnote 24 Neither of these claims is true in our model. In our set-up, it is entirely rational for citizens to be loyal when they lack a credible exit threat.Footnote 25 Moreover, citizens do not choose loyalty due to a special attachment to the government or because they think the government might eventually reverse course; instead, they do so because they are powerless to do otherwise. One reason why our inferences differ relates to the source of the negative change in the citizen’s environment. Whereas we assume that it results from a deliberate choice by the government, Hirschman conceives of it as ‘accidental’ and something that the government would like to resolve if only it knew about it. Given that the citizen could simply use her voice or exit to inform the government of the deleterious change, it is easy to see why Hirschman refers to loyalty as something ‘less than rational’.Footnote 26

Finally, our model set-up contributes to long-standing debates about the conceptualization of the state.Footnote 27 Consider the set of governments that could plausibly rule, G, and the set of pressure groups, P, that exist at a particular point in time. Just because government g i is dependent on group p j does not mean that every conceivable government would be. If, however, g i is dependent on p j for every feasible (as opposed to logically possible) incumbent government (that is, for all $g_{i} \inG$ ), then it might make sense to say that the state is dependent on p j . Similarly, if g i is autonomous from p j for all $g_{i} \in G$ , we could say that the state is autonomous from p j . In the context of the ongoing debate about the usefulness of the state as a theoretical concept,Footnote 28 our reasoning suggests that the state (to the extent that it exists) is an inherently relational entity, which is best understood in relation to societal actors, and that one can talk meaningfully about it whenever one can ascribe a characteristic (for example, autonomy or dependence) that is invariant with respect to the identity of the incumbent government.Footnote 29

AN EXTENDED EVL MODEL OF POLITICS

That the deleterious change in the citizen’s environment results from a deliberate policy choice by the government in our model raises an important question that does not arise in Hirschman’s original analysis: if the government will be responsive to those citizens on whom it depends for loyalty whenever those citizens possess credible exit threats, why would it ever take a benefit away from these citizens in the first place?

To address this question, we add a move at the beginning of the game in which the government decides whether to take the benefit away from the citizen. One can think of this as a decision about whether to predate. If the government chooses to predate, the EVL game we have just examined begins with one small modification – we now explicitly recognize the cost, c g >0, imposed on the government when the citizen uses voice. To make sure there is a citizen to play the game, we also assume that E<1. If this were not the case, the citizen would immediately exit irrespective of whether the government predates or not. If the government chooses not to predate, the citizen continues to enjoy her benefit and the government receives the value of having a loyal citizen. This extended EVL game is shown in Figure 2. Solving the game through backward induction yields four subgame perfect Nash equilibria, which are depicted in Table 2.

Fig. 2 Extended EVL game Note: E is the citizen’s exit payoff, 1 is the value of the benefit belonging to the citizen at the beginning of the game (and which the government is deciding whether to take), L is the value the government obtains from having a loyal citizen who does not exit, c is the citizen’s cost of using voice and cg is the cost to the government imposed by the citizen’s use of voice. It is assumed that c, cg, L>0, and that E<1.

Table 2 Equilibria and Outcomes in the Extended EVL Game

Note: the equilibria are written in the following form: (government’s first action, government’s second action; citizen’s first action, citizen’s second action). Proofs are shown in the online appendix.

An autonomous government always chooses to predate whether the citizen has a credible exit threat or not. The citizen responds to predation by an autonomous government by remaining loyal if she has no credible exit threat (Equilibrium E8) or by exiting if she does (Equilibrium E5). In contrast, a dependent government only predates if the citizen has no credible exit threat (Equilibrium E8). The dependent government predates under these conditions because it knows it can take away the citizen’s benefit safe in the knowledge that she cannot do anything about it – she will always remain loyal. A dependent government chooses not to predate, though, when the citizen has a credible exit threat in order to either prevent the citizen from exiting (Equilibrium E7) or to avoid having to respond positively to her use of voice (Equilibrium E6). Thus the answer to the question with which we began this section is that a government would not predate on citizens upon whom it depends if they have a credible exit threat.

The extended game essentially provides the conditions under which a government will endogenously limit its own power. As such, it alleviates concerns that theorists have had about Hobbes’ solution to the state of nature. Hobbes saw the creation of a powerful ‘sovereign’ who would ‘awe’ his citizens as the solution to the ‘war of all against all’ characterizing the state of nature.Footnote 30 Although theorists such as Locke recognized that the creation of a sovereign might solve the problems citizens have with each other, they thought it created a potentially more troubling problem between the citizens and the sovereign.Footnote 31 By surrendering control over the means of violence to the sovereign, what was to prevent him from using this power against his citizens? The extended EVL game illustrates that the sovereign (government) will voluntarily limit his predation if he depends on citizens with credible exit threats.

As the extended EVL game makes clear, citizens who have credible exit options wield considerable power whenever the government depends on them. More significantly, they wield this power without ever needing to use their voice. Former British Prime Minister Margaret Thatcher once said that ‘Being powerful is like being a lady. If you have to tell people you are, you aren’t.’ Her major insight that sufficiently powerful citizens never need to use their voice because the government is already doing what they want is clearly demonstrated in our model. What remains questionable is her implication that the use of voice can be taken as a sign that citizens lack power. This is because the citizen who lacks power knows that the government will ignore her, and therefore chooses to remain loyal rather than pay the cost of using voice. In reality, it is the decision to demonstrate loyalty, instead of using one’s voice, which signals a lack of power. This insight poses a challenge to scholars who wish to empirically identify and evaluate who has power, because it indicates that the most powerful actors in a society will be those who are least likely to use their voice. In effect, scholars will find it difficult to actually observe the powerful ever using their power.Footnote 32

This discussion has important implications for the study of comparative politics that run parallel to the insights gleaned from formal models of crisis bargaining in international politics. The insight that crises occur only after a deterrence failureFootnote 33 has sensitized empirical international relations (IR) scholars to the difficulty of making valid inferences about the effectiveness of deterrence from a sample that only includes general deterrence failures.Footnote 34 This insight has already rippled through much of the IR literature dealing with issues such as alliances,Footnote 35 bilateral co-operationFootnote 36 and treaty compliance.Footnote 37 In addition, it has spawned a proliferation of methodological innovations to better take into account strategic interaction.Footnote 38

Our extended EVL model indicates that a similar logic is also fundamental to the study of comparative politics. Conflicts between citizens and the government occur only if the citizens in question are not powerful, or if the government fails to anticipate the citizens’ preferred outcome. This suggests that attempts to evaluate the influence of citizens on the government that do not account for this logic are likely to produce biased estimates. This has obvious implications for the study of a whole host of topics in comparative politics such as military insurrections, protests, coups and lobbying. Consider the literature on lobbying, in which it is common for scholars to claim that actors who lack credible exit threats are the most likely to engage in lobbyingFootnote 39 and that influence over policy increases with the intensity of lobbying activity.Footnote 40 As the extended EVL game demonstrates, each of these claims is deeply problematic.Footnote 41

In many ways, the argument we have presented echoes the structural Marxist view of the state.Footnote 42 According to this view, capitalists exercise tremendous power over the state despite speaking very softly because they possess credible exit threats and governments of all partisan hues are dependent on them for the deployment of investment that fosters job creation, economic growth and tax revenues.Footnote 43 It is precisely because capital is generally more mobile than labor – and, therefore, has more credible exit options – that capitalists typically have significantly more influence over governments than workers.Footnote 44 This is true even if governments depend equally on labor and capital. This argument is easily extended to explain why governments do not respond equally to different sectors of the economy. For example, one reason why the US government acted with alacrity to bail out the banking system during the global economic crisis in 2008 while moving more cautiously and with greater reluctance to aid struggling car manufacturers was that the financial sector had more credible exit threats.

EVL GAME: INCOMPLETE INFORMATION

In some sense, the EVL game we first examined is as noteworthy for what it does not explain as for what it does. Citizens only use voice when they expect it to be effective – when they expect the government to respond positively to their demands. As a result, the model cannot explain why we sometimes observe governments being unresponsive to the public demands of their citizens. It only requires incomplete information on the part of the citizen, though, to obtain an equilibrium in which the citizen uses voice but is ignored by the government.Footnote 45 In such an equilibrium, a citizen with a credible exit threat uses voice believing that the government is dependent, but finds herself ignored because the government is, in fact, autonomous.Footnote 46

Incomplete information has an asymmetric effect on the relative power of citizens and governments: it can help citizens but not governments. When the government is unsure whether the citizen has a credible exit threat, there is a pooling equilibrium in which both types of citizen use voice. If the government believes that the citizen has a credible exit threat with a sufficiently high probability, it responds positively to her demands. The government’s inability to distinguish between the different types of citizens clearly enhances the power of citizens who lack credible exit threats. Recall that under complete information, these citizens are sitting ducks in that all governments ignore their demands. This is no longer the case when they face a dependent government that is unsure about what type of citizen it is dealing with. In effect, incomplete information can empower otherwise powerless citizens. This suggests that citizens who do not have credible exit threats should be very careful not to take actions that might reveal their type.

While citizens who lack credible exit threats can sometimes exert influence if the government is unsure of their type, dependent governments are no better off – and may actually be worse off – if the citizen is unsure about the government’s type. Under complete information, a citizen with a credible exit threat either exits or uses voice when faced with a dependent government. By assumption, a dependent government always prefers to respond positively to the use of voice than have the citizen simply exit. Under incomplete information, a citizen with a credible exit threat again either exits or uses voice. The difference is that some citizens who would have used voice if they knew for sure that they faced a dependent government may choose to exit because they are not sufficiently confident of the government’s type. Thus citizens with a credible exit threat are relatively more likely to exit with incomplete information. As a result, a dependent government will be no better off, and may actually be worse off than an autonomous government. Overall, it appears that incomplete information is, if anything, more likely to help tip the balance of power toward citizens rather than governments.

A SUBSTANTIVE APPLICATION TO THE DEMOCRATIZATION LITERATURE

Our reformulation of Hirschman’s EVL framework captures important commonalities across disparate political phenomena. To illustrate this in a particular substantive realm, we now apply it to several issues in the democratization literature related to modernization theory, the political resource curse, inequality, foreign aid and economic performance.

Modernization Theory and the Political Resource Curse

According to classic modernization theory, states are more likely to become democratic and stay democratic as they become wealthier.Footnote 47 A common criticism of modernization theory is that it lacks a clear causal mechanism and simply relies on an empirical correlation between wealth and democracy.Footnote 48 Acemoglu and Robinson go so far as to say that ‘there is as yet no theoretical explanation for this empirical fact’.Footnote 49 Our EVL model is able to provide an explanation for the observed relationship between development and more representative government.

We take as our starting point a variant of modernization theory that says it is not wealth per se that encourages democracy, but rather the changes in socio-economic structure that accompany economic development in the modernization process. A key structural change in the modernization process has to do with the relative size of various sectors in the economy. According to this variant of modernization theory, all economies can be divided into the same set of sectors – agriculture (the traditional sector), and manufacturing and services (the modern sector). In the early stages of development, countries have large agricultural sectors but relatively small manufacturing and service sectors. As the modernization process brings about efficiencies in the agricultural sector, though, resources are freed up for use in the manufacturing and service sectors. Over time, and as countries continue to develop, the manufacturing and service sectors become larger than the agricultural sector. A consequence of these changes is that the economy becomes increasingly comprised of actors with mobile assets.

To understand how this affects the process of democratization, consider a general scenario in which the government confronts a citizen who can choose whether or not to deploy her assets within its jurisdiction. Historically, the citizen’s gross income, Y, from the investment of her assets has been taxed by the government at a low rate, τ L ≥0, so that her post-tax income has been $Y{\minus}\tau _{L} Y\,{\equals}\,(1{\minus}\tau _{L} )Y$ . Recently, though, the government has implemented a higher tax rate, τ H >τ L . The citizen can respond to this deleterious change in her environment by disinvesting (exit), objecting to the tax hike (voice) or continuing to invest at the same level as before (loyalty). The basic structure of this strategic scenario is shown in Figure 3.

If the citizen continues to invest, she receives a per-period income of (1–τ H )Y for the indefinite future, while the government receives a per-period tax revenue of τ H Y, also for the indefinite future. If the citizen disinvests, the government receives τ H Y in the current period, but loses the stream of future revenues that would have been generated by the citizen’s investment. In effect, it takes one period for the citizen to redeploy her assets, allowing the government to benefit from confiscatory tax rates in the short run. The decision to exit means that the citizen receives (1–τ H )Y in the current period, as well as the expected stream of income generated by her exit payoff, E. Her exit payoff is the return net of any taxes on the second-best use of her asset, which could involve consuming or investing in some other asset or jurisdiction.

Finally, if the citizen objects to the higher tax rate, she pays a cost, c>0. The government can respond to an objection either by ignoring it or by reverting to the low tax rate for the current and all future periods. In the first case, in which the government ignores the objection, the citizen either makes good on her threat to disinvest, which was at least implicit in her objection to the tax hike, or continues to invest at the same high rate as before. If she disinvests, the citizen receives (1–τ H )Y in the current period and continues to receive her exit payoff in future periods, while the government receives τ H Y in the current period but forfeits the stream of tax revenues that would have been generated by the citizen’s continued investment. If she continues to invest, the citizen receives (1–τ H )Y in the current period and a future per-period income of (1–τ H )Y, while the government receives τ H Y in every period, including the present. In the second case, in which the government reverts to the low tax rate, the citizen continues investing as before: she receives (1–τ L )Y in every period, while the government receives τ L Y in every period.

Solving the game through backward induction yields three subgame perfect Nash equilibria, which are depicted in Table 3.Footnote 50 The outcome of the bargaining interaction between the government and the citizen depends in important ways on the nature of the assets held. We say that the citizen has a credible exit threat whenever her per-period ‘exit’ payoff is greater than her per-period ‘loyalty’ payoff, E>(1−τ H )Y. Our results show that asset holders who lack credible exit threats (those with fixed or immobile assets) have no choice but to continue investing while the government extracts from them with impunity. In contrast, asset holders who have credible exit threats (those with liquid or mobile assets) will not experience predatory tax policies as long as the government values their continued investment sufficiently highly, $\delta \geq 1{\minus}{{\tau _{L} Y} \over {\tau _{H} Y}}$ .Footnote 51 In effect, our model indicates that governments will be constrained in their selection of the tax rate when they depend on mobile asset holders.

Table 3 Equilibria and Outcomes in the EVL Democratization Game

Note: the equilibria are written in the following form: (citizen’s first action, citizen’s second action; government’s action). It is assumed that objection is a realistic option, $0\,\lt\,c\leq \left( {\tau _{H} {\minus}\tau _{L} } \right)Y{\plus}\mathop{\sum}\nolimits_{t{\equals}1}^\infty {\delta ^{t} \left[ {\left( {1{\minus}\tau _{L} } \right)Y{\minus}E} \right]} $ . Proofs are shown in the online appendix.

As noted earlier, structural changes in the economy that accompany the modernization process generally result in an increasing number of actors with liquid and mobile assets. Governments that are reliant on these actors to achieve their goals will, as we have seen, take their preferences into account when making policy. This does not mean that dependent governments will necessarily be democratic in the sense that they respond to the preferences of the majority. Our model indicates only that they will be responsive to those citizens with credible exit threats. This is illustrated by the history of Mexico between 1876 and 1929. Although Mexican governments in this period were responsive to sectors of the economy that were dominated by sophisticated technologies of production – those sectors in which actors had high levels of human capital and, therefore, credible exit threats – their behavior was predatory with respect to the general population.Footnote 52 That the number of people with credible exit threats typically increases with development, though, means that dependent governments become responsive to larger and larger sections of their society over time. The result is that the modernization process leads to the emergence of democratic governments or, at least, governments that are responsive to a large proportion of their citizens.

Our claim that representative government is more likely when those who rule depend on societal groups that possess mobile and liquid assets – a middle class – echoes Barrington Moore’s famous refrain, ‘No Bourgeois, No Democracy.’Footnote 53 It also fits with the story proposed by Bates and Lien to explain the emergence of representative government in England during the Glorious Revolution.Footnote 54 By the seventeenth century, the modernization process had brought about a shift in economic power from a small number of traditional elites who controlled large swathes of land producing easily quantifiable agricultural products to a rising class of wool producers, merchants and financial intermediaries who controlled assets that were more mobile, and therefore difficult for the crown to count and tax. The ability of the gentry to ‘hide’ its assets from state predation changed the balance of power between modernizing social groups and the traditional seats of power. Monarchs, who needed money to keep power at home and wage war abroad, suddenly found that predation no longer worked. To continue extracting revenues, they had to become responsive to the demands of a larger segment of society, particularly the new economic elites in the towns.

Our analysis indicates that dependent ruling elites will respond to the preferences of citizens with credible exit threats. But why go further and establish representative (democratic) institutions that explicitly limit their discretion? One common story, which fits with our EVL framework, is that these institutions help overcome credible commitment problems.Footnote 55 Citizens with credible exit threats exert leverage over a dependent government, but only so long as the government remains dependent on them. If there is a chance that the government will become more autonomous over time, then promises to take citizen preferences into account in the future will not be credible. Citizens with credible exit threats may simply decide to disinvest in these circumstances. Establishing democratic institutions that can constrain them in the future is one way that ruling elites can solve their credible commitment problem and gain access to the investment on which they depend today.

In addition to providing a causal mechanism linking the modernization process to the emergence of representative government, our model also helps explain the political resource curse – the idea that revenues from natural resources such as oil and copper are associated with authoritarianism.Footnote 56 The existing literature comprises both supply-side and demand-side explanations.Footnote 57 Supply-side explanations focus on how resource revenues empower authoritarian leaders to resist pressure to democratize and consolidate their hold on power. In these explanations, resource revenue is either distributed as patronage to pre-empt or co-opt opposition groups, or it is used to build coercive power to repress opposition groups.Footnote 58

In contrast, demand-side explanations emphasize the way in which resource revenues reduce both the demand for democratic reform from the citizenry and government responsiveness to that demand. Governments that can raise revenue from natural resources do not need to do so by taxing their citizenry.Footnote 59 These governments are ‘autonomous’ and do not need to accept institutional limits on their political power in exchange for revenue. Low tax rates and the increased social spending that is made possible by resource revenues further alleviate social pressures that might otherwise provoke demands for government accountability.Footnote 60 The underlying logic of demand-side explanations is clearly seen in our EVL model. By increasing the autonomy of the government, resource revenues undermine a government–citizen bargaining dynamic that might otherwise culminate in democratic reforms.Footnote 61

Our model has important implications for how scholars should test demand-side explanations of the resource curse. Existing studies either focus on resource abundance, which captures the absolute size of resource rents in a country,Footnote 62 or resource dependence, which captures the size of resource rents relative to other sources of government revenue.Footnote 63 Our model suggests that there are general theoretical reasons to focus on resource dependence as opposed to resource abundance. The relative bargaining power of the actors in our EVL model depends on the extent to which the government depends on mobile asset holders. If a large proportion of the government’s revenue comes from citizens with mobile assets, then it has to credibly commit to policies that favor these citizens in exchange for their continued investment. However, if a large proportion of the government’s revenue comes from natural resource extraction, then its incentive to make credible commitments to its citizens by establishing democratic institutions decreases. This implies that we should expect a country’s dependence on resource revenues, and not necessarily resource abundance, to affect its regime type.Footnote 64

A second implication of our EVL framework is that the political resource curse is primarily about authoritarian stability, rather than democratic stability. In our model, resource rents reduce the likelihood of democratic transitions by insulating governments from the demands of their citizens. Although resource rents impede the emergence of democracy, they need not harm democratic stability. On the demand side, resource rents in democracies will have come too late to prevent the emergence of institutions capable of holding governments accountable. On the supply side, revenue allocation in democracies is subject to popular oversight, which limits the government’s ability to spend revenue on patronage or coercion. This helps explain why resource rents have not undermined democracy in Canada, Norway, the United Kingdom and the United States. In each of these countries, the flow of resource rents came well after democratic institutions had already become entrenched. This suggests both that the negative effects of resource rents are conditional on the quality of the institutional endowment when resource rents are first exploited, and that tests of the resource curse should focus on how rents affect the emergence of democracy, rather than the stability or level of democracy.Footnote 65

Inequality

The redistributive thesis underlying most economic models of democratization states that economic inequality affects the emergence and survival of democracy.Footnote 66 The underlying idea is that inequality produces political competition between the rich and the poor. Inequality provides incentives for the poor to redistribute wealth from the rich. The ability of the poor to expropriate the rich through the ballot box makes democracy appealing to the poor but costly for the rich. As a result, inequality provides incentives for the rich to block attempts at democratization or conduct coups to reverse democratization. Whereas some argue that inequality always has a negative effect on democracy,Footnote 67 others argue that the relationship is non-monotonic, with democracy most likely to emerge at moderate levels of inequality when the poor are dissatisfied with the distribution of income but the rich are not so averse to democracy that they resort to repression to prevent it.Footnote 68

Despite the widespread adoption of economic models of democratization, the empirical support for the redistributive thesis is rather weak. Although some studies find a negative relationship between inequality and democracy, most find no relationship at all.Footnote 69 Even the studies that do find a negative relationship differ over whether it applies only to the emergence of democracyFootnote 70 or to the survival of democracy.Footnote 71 One potential explanation for this weak or nonexistent support is that the causal process underlying the redistributive thesis is flawed. There is little empirical evidence, for example, to support the claims that the demand for redistribution increases with inequality or that democracies redistribute more than dictatorships.Footnote 72 Even if these claims were true, the applicability of the redistributive thesis is limited by the fact that only half of the democratic transitions that have occurred during the third wave of democracy actually exhibit signs of distributive conflict between the rich and the poor.Footnote 73 As predicted by our EVL model, the key actor in most democratic transitions is not the poor but the middle class, a group with average income levels well above that of the average income earner and whose members would therefore be net contributors in the tax and redistribution system assumed in most economic models of democratization.Footnote 74

The logic inherent in our EVL model also provides a second explanation for why existing studies generally fail to find a consistent negative relationship between inequality and democracy. Recall that asset holders with credible exit threats will not experience predatory tax policies so long as the government sufficiently values their continued investment. The fact that these economic elites can realistically withdraw their much-needed assets, either by consuming them or by investing them beyond the reaches of a predatory government, provides one explanation for why we rarely see the poor vote to expropriate them in democracies. Our argument here fits squarely within the larger literature on the structural dependence of the state on capital.Footnote 75 In effect, full democracy, where representation extends to the poor, will only appear costly to those with above-average incomes, including the middle class, if they have immobile assets. Resource curse theory indicates that democracy is unlikely to emerge in countries where immobile asset holders predominate. As a result, inequality should only threaten democracy in situations where democracy is already unlikely to occur in the first place.

The fact that almost all empirical studies that examine the effect of inequality on democracy ignore the conditioning effect of asset mobility may help explain the inconsistent results in the literature. To our knowledge, Freeman and Quinn provide the only explicit statistical test of a conditional argument linking inequality to democracy.Footnote 76 In line with the predictions from our EVL model, they find that unequal and financially integrated dictatorships are much more likely to undergo democratic transitions than unequal and financially closed dictatorships. Further support for our argument comes from Ansell and Samuels, who find that income inequality fosters democratization but that land inequality hinders it.Footnote 77 Although they do not frame their results in terms of asset mobility, it is easy to see that these results fit with our theoretical story. As Ansell and Samuels note, income inequality generally increases with the creation of a large middle class, a group that tends to have liquid and mobile assets. In contrast, land inequality typically signals the existence of a large landed aristocracy that primarily holds immobile assets. These landed elites have more to fear from democratization due to the nature of their assets. Wood’s account of the democratic transition in South Africa in 1994 is also consistent with our theoretical argument.Footnote 78 The economic assets of the white minority had become more mobile with the globalization of the South African economy in the 1980s and early 1990s. Wood argues that this increased asset mobility made the whites willing to accept a democratic transition despite the very high levels of inequality.

Foreign Aid

The growing literature on foreign aid and democratization is dominated by a debate between ‘aid optimists’ and ‘aid pessimists’.Footnote 79 Our EVL model demonstrates a clear causal path by which foreign aid can hinder democracy. However, it also suggests the conditions under which foreign aid might encourage limited democratization reforms.

Like natural resource revenue, foreign aid can hinder democratization by decreasing the demand for democratic reform from the citizenry as well as government responsiveness to that demand.Footnote 80 By reducing their need to raise taxes and providing access to ‘slack resources’ that can be strategically used to reward supporters and co-opt opposition groups, foreign aid increases the autonomy of recipient governments with respect to the demands of their citizens.Footnote 81 Moreover, the low taxes and increased spending that are made possible by foreign aid reduces the citizenry’s demand for democratic reforms in the first place.Footnote 82 In this way, foreign aid undermines the government–citizen bargaining dynamic in our EVL model that can encourage governments to accept institutional limits on their power in return for continued investment and tax revenue.Footnote 83

Many scholars claim that revenue from foreign aid is the same as revenue from natural resources, in that they both represent forms of ‘unearned income’.Footnote 84 This has led some to identify a political foreign aid curse that mirrors the political resource curse.Footnote 85 There are significant differences, though, between natural resources and foreign aid.Footnote 86 Importantly, these differences suggest that a foreign aid curse is not inevitable and that there are conditions under which foreign aid can actually encourage limited democratization reforms.

One important difference is that while resource revenue makes governments more autonomous in a general sense, this is not the case with foreign aid revenue.Footnote 87 Foreign aid may make governments less dependent on their own citizens, but it also makes them more dependent on their foreign aid donors. As our EVL model indicates, aid donors can exert influence on these recipient countries whenever they have credible exit threats. This raises important questions about aid conditionality. Specifically, what conditions do foreign donors impose, and can they credibly threaten to withdraw aid if their conditions are not met?

Aid donors are often as interested in achieving strategic goals as they are in achieving political reforms in the recipient country.Footnote 88 To the extent that aid is purely strategic, there is little reason to believe that it would promote democratization.Footnote 89 Many aid donors, though, do demand political (and economic) reform as one of the conditions for continued foreign aid. Empirical evidence that donor countries rarely enforce these types of conditionsFootnote 90 has led some to claim that foreign aid is effectively ‘unconditional’ in practice.Footnote 91 To the extent that this is true, there is again little reason to believe that foreign aid would promote democratization.

However, the extent to which aid donors can enforce their conditions for political reform depends on whether they have credible exit threats. Threats to withhold aid are not credible when the aid donor has a strategic interest in helping the recipient country.Footnote 92 As a result, foreign aid will only be effective at promoting political reform when the donor has no strategic interests in the ‘dependent’ recipient country. This conditionality, which is implied by our EVL model, is supported by recent studies showing that aid is associated with democratic reforms in the post-Cold War period but not during the Cold War, when alliance politics was more strategically important.Footnote 93 It is also supported by studies suggesting that multilateral aid is more likely to result in political reforms than bilateral aid.Footnote 94 The threat to withhold aid if the recipient country does not implement the desired political reform is more credible from multilateral aid donors because they are likely to have competing strategic interests. Thus foreign aid can promote democratization, as long as (1) the recipient country is dependent on the aid,Footnote 95 (2) the aid donor wants political reform in the recipient country and (3) the aid donor has credible exit threats (that is, they can credibly threaten to withdraw aid if their conditions are not met).

Any political reforms that do occur in the recipient country, though, are likely to be limited. If the recipient country wanted to introduce democratic reforms itself, there would be little need for donor countries to provide foreign aid to encourage this.Footnote 96 In effect, most dictatorial leaders in recipient countries will be reluctant to introduce meaningful democratic reforms; instead, they will try to get away with implementing superficial reforms that are sufficient to satisfy their foreign aid donors but do not threaten their own hold on power. Consistent with this, Dietrich and Wright find that foreign aid tends to increase de jure contestation, which is central to most quantitative measures of regime type, but not de facto contestation.Footnote 97 While foreign aid might encourage the emergence of multiparty politics – and hence higher scores on quantitative measures of democracy – the multiparty politics that results is one in which the opposition parties are typically kept weak and the incumbent leaders continue to dominate. Also consistent with the claim that foreign aid is likely to produce only limited political reform is research showing that democratic reforms tend to stop, and are even reversed, as soon as the flow of aid is interrupted.Footnote 98

Economic Performance

There is a large literature on the political determinants of economic performance,Footnote 99 much of which focuses on the effect of regime type.Footnote 100 Our EVL model contributes to this literature by indicating the conditions under which one would expect to observe growing, as opposed to stagnant, economies.

The equilibria shown in Table 3 indicate that the economic performance of democracies will be good, whereas that of dictatorships will be more heterogeneous. As Equilibrium E10 indicates, countries in which governments are dependent on citizens with credible exit threats are likely to be democratic and have a strong growing economy. The economy grows because the citizens invest their assets, safe in the knowledge that the government will not predate on them. As Equilibrium E11 indicates, countries in which citizens lack credible exit threats are likely to be dictatorial and have a weak but growing economy. The economy grows because the citizens have little option but to continue investing, making the best of what they have and hoping that the government does not predate too much. As Equlibrium E9 indicates, countries in which governments are autonomous and citizens have credible exit threats are likely to be dictatorial and have a stagnant economy. The economy is stagnant because citizens are able to redeploy their assets elsewhere to avoid government predation. The prediction that dictatorships will exhibit more variation in economic performance than democracies has strong empirical support.Footnote 101 The fact that some dictatorships are expected to have growing economies provides a potential explanation for why so many studies have failed to find compelling evidence that democracies routinely produce better economic performance than dictatorships.Footnote 102 Our EVL model indicates that it is inappropriate to simply compare the economic performance of democracies and dictatorships because economic performance across these regimes should be conditional on whether the citizens have credible exit threats.

In many ways, the predictions of our EVL model are consistent with the theoretical claims made by selectorate theory.Footnote 103 This is not surprising, given that selectorate theory implicitly incorporates an EVL argument. According to this theory, the incumbent leader is dependent on members of the winning coalition but autonomous with respect to other citizens (the selectorate and the disenfranchised). Incumbents naturally pay no attention to the preferences of citizens who are not in the winning coalition. Whether the incumbent responds positively to the preferences of members of the winning coalition depends on whether they have credible exit threats, which is captured in selectorate theory by the strength of the ‘loyalty norm’. The loyalty norm is weak (strong) whenever members of the winning coalition can (cannot) credibly threaten to defect to the challenger’s coalition. Incumbent leaders respond positively to the preferences of the winning coalition only when the loyalty norm is weak. Significantly, this suggests that contestation is more important than inclusion for good governance.Footnote 104 This is exactly the same theoretical intuition as in our EVL model. Like us, selectorate theory predicts that economic performance will be better when the leader depends on a winning coalition that has credible exit threats.

CONCLUSION

Human interactions are considered political whenever actors cannot accomplish their goals without considering the behavior of other actors. Under such circumstances, the attempt to influence, or to avoid the influence of, others becomes relevant. It is here that power can (and will) be exercised. Attempts to influence or break free of the influence of others involve three basic strategies. Like the primordial response of ‘fight or flight’, political actors can either attempt to change their environment by using voice or alter their ‘location’ by using exit. ‘Voice’ and ‘exit’ are to be understood metaphorically here. A citizen’s use of exit in response to a government policy need not involve emigration; instead, a citizen might change industries, production processes or political parties. Similarly, a citizen’s use of voice might come in the form of a host of behaviors ranging from a ballot to a bullet. Finally, a citizen’s best response to government policy might be to ‘keep on, keepin’ on’. That is, throughout most of human history, the vast majority of humanity has often found itself between a rock and a hard place. Under such circumstances, it is possible that neither voice nor exit is a feasible option. It should be clear that here too, the term ‘loyalty’ is being used metaphorically – indeed, euphemistically.

Political scientists often construct separate and distinct models to capture various political phenomena. For example, we have multiple models to explain lobbying, protests, elections, conflict and so on. Each of these specific models provides important insights into these different phenomena. In this article, we adopt a different approach. Rather than focus on the specificities of different political phenomena, we have sought to construct a model that captures the key elements common to most, if not all, political situations. Our model focuses on when and why actors choose to exit, remain loyal or use their voice. Although our model builds on Hirschman’s EVL framework, it departs from his causal argument by following an influential and well-established line of research that treats exit, voice and loyalty as distinct behavioral responses to a deleterious change in one’s environment. Whereas our reformulation and extension of Hirschman’s EVL framework reaffirms some of his original claims, it contradicts several others. It also highlights several points regarding the use of power that are routinely overlooked or underemphasized by scholars across various areas of political science.

Most importantly, our model highlights the strategic interdependencies involved in the use of power. Voice is only powerful when an individual has the power to exit and the threat to exit has power. If the citizen’s exit threat is not credible, or if the government does not value the citizen’s loyalty, then the use of voice will be ineffective. This insight points to a central irony, perhaps tragedy, about politics. Citizens who would derive the most from successfully using their voice – those whose exit options are unattractive – are unlikely to have much influence over the government. Relatedly, citizens who have the power to use voice effectively will typically not need to use their voice, as the government has incentives to anticipate their desires. This suggests that much of the voice we observe on a day-to-day basis occurs in situations where citizens mistakenly think that the government values their loyalty or mistakenly believe that they can convince the government that their exit threats are credible.Footnote 105 Failing to recognize these strategic dynamics will lead to specification errors in empirical models and, hence, biased inferences in virtually every area of our discipline.

To highlight the commonalities in the use of power across apparently disparate political phenomena, we applied our model to several substantive issues in the democratization literature related to modernization theory, the political resource curse, inequality, foreign aid and economic performance. Our EVL model was able to combine insights from the largely distinct literatures dealing with modernization theory and the political resource curse in the same theoretical framework. It also offered potential explanations for why inequality does not necessarily harm democratization, why foreign aid tends to deter democratization but can sometimes promote limited democratic reforms, and why economic performance in dictatorships is more heterogeneous than in democracies. Although we focused on the democratization literature, our model offers a fruitful analytical framework for examining the use of power in a wide variety of other political settings as well.

Fig. 3 EVL democratization game Note: the game comprises two players: the citizen and the government. The citizen’s payoffs depend on her pre-tax income from the first best use of her asset, Y; the expected return on the second best use of her asset, E; her discount factor, δ; the cost of objecting to the government’s tax hike, c; and whether the tax rate is low, τL, or high, τH. The government’s payoffs depend on the citizen’s pre-tax income from the first best use of her asset, its discount factor, and the tax rate. It is assumed that τHL≥0, and that $0\,\lt\,c\leq \left( {\tau _{H} {\minus}\tau _{L} } \right)Y{\plus}\mathop{\sum}\nolimits_{t{\equals}1}^\infty {\delta ^{t} \left[ {\left( {1{\minus}\tau _{L} } \right)Y{\minus}E} \right]} $ .

2 See, for example, Barry Reference Barry1974; Birch Reference Birch1975; Dowding and John Reference Dowding and John1996, Reference Dowding and John2012; Dowding et al. Reference Dowding, John, Mergoupis and Van Vugt2000; Laver Reference Laver1976. Hirschman’s book has also generated a huge literature in economics, psychology, management studies, public administration and other fields. According to Google Scholar, his original book has been cited over 17,000 times. For a good summary of this literature, see Dowding and John (Reference Dowding and John2012).

3 Dowding and John Reference Dowding and John2012.

4 Gehlbach Reference Gehlbach2006. Slapin (Reference Slapin2009) also provides a game-theoretic model that builds on Hirschman’s ideas. However, his model addresses only exit and voice; it ignores loyalty.

5 Dowding and John Reference Dowding and John2012.

6 Rusbult and Lowery Reference Rusbult and Lowery1985; Rusbult, Zembrodt, and Gunn Reference Rusbult, Zembrodt and Gunn1982.

7 Lyons, Lowery, and DeHoog Reference Lyons, Lowery and DeHoog1992.

9 Dowding and John Reference Dowding and John2012.

10 Barry (Reference Barry1974, 91, 97) criticizes Hirschman for claiming that individuals face a single choice between exit and voice. Instead, he argues that individuals have two dichotomous choices, either exit or non-exit, and if non-exit then either voice or silence. This is similar to our framework, and Barry’s concept of ‘silent non-exit’ is effectively the same as our concept of loyalty.

11 One way in which our model differs from the EVLN framework has to do with how loyalty and neglect are conceptualized. Within the EVLN framework, loyalty involves passively (but optimistically) waiting for conditions to improve, while neglect involves exerting less effort, developing negative attitudes and exhibiting less interest (Dowding and John Reference Dowding and John2012). In some ways, the EVLN conceptualization of loyalty is similar to our own in that individuals accept the deleterious change to their environment and do not change their pre-existing behavior. The difference is that we see no reason to assign a psychological disposition such as optimism – as opposed to, say, resignation – to this particular behavioral response. The difference with respect to neglect is more stark. From our perspective, neglect is simply a form of exit, rather than a distinct behavioral response. This is because individuals who engage in neglect accept the deleterious change to their situation but alter their behavior – they reduce their effort, display increasingly negative attitudes and exhibit less interest – to optimize as best they can in the new environment.

12 Hirschman (Reference Hirschman1970, 19) differs on this point in that he refers to exit and voice as ‘economic and political mechanisms’. Our reasoning would suggest that exit can be just as political as voice.

13 Gramsci Reference Gramsci1971.

14 We use the term ‘government’ quite broadly to refer to the set of people that runs the state at a particular point in time.

15 The proofs for all of the results presented in this article can be found in the online appendix.

16 Collective action problems obviously arise when citizens seek to influence the government (Olson Reference Olson1965). While we do not wish to underestimate the difficulties that citizens face in overcoming these problems, our primary focus here is on understanding the power relationship between citizens and governments when collective action problems either do not exist or when they have already been solved. In this respect, our model indicates that while overcoming collective action problems may be necessary for citizens to be able to influence the government, it is far from sufficient. For a critical discussion of the collective action problem in the context of Hirschman’s EVL framework, see Barry (Reference Barry1974, 92–5).

17 Hirschman Reference Hirschman1970, 21.

18 See, for example, Fang and Ramsay Reference Fang and Ramsay2010; Kurrild-Klitgaard Reference Kurrild-Klitgaard2002; Schneider and Cederman Reference Schneider and Cederman1994; Vanberg and Congleton Reference Vanberg and Congleton1992; Voeten Reference Voeten2001.

19 Hirschman Reference Hirschman1970, 37.

20 Lake and Baum Reference Lake and Baum2001, 595. Hirschman (Reference Hirschman1992, 80) recognizes this point in later work when he writes that ‘The availability and threat of exit on the part of an important customer or group of members may powerfully reinforce their voice’. He concludes that ‘such a positive relationship between increased availability of exit and increased willingness to voice rests on a structure that is more complex than the one underlying the seesaw pattern’ that he had originally foreseen (Hirschman Reference Hirschman1993, 14).

21 Barry Reference Barry1974, 88.

23 By 1961, the East German regime had come to recognize that it relied on its citizens to keep the economy afloat and itself in power. By building the Berlin Wall and removing the one credible exit option available to its citizens, the communist regime was able to deprive its citizens of any influence they might have had over it.

24 Hirschman Reference Hirschman1970, 38, 77.

25 Barry Reference Barry1974, 91–92.

26 The same reasoning helps explain why Hirschman (Reference Hirschman1992, 79) thinks that voice ‘is, or should be, paramount in situations where exit either is not possible or is difficult, costly, and traumatic’, whereas our model clearly shows that voice is entirely ineffective without the presence of a credible exit threat (and a dependent government).

27 See, for example, Evans, Rueschemeyer, and Skocpol Reference Evans, Rueschemeyer and Skocpol1985; Krasner Reference Krasner1984; Nettl Reference Nettl1968; Nordlinger Reference Nordlinger1981; Skocpol Reference Skocpol1979.

29 Our theoretical framework also allows us to add some precision to the concept of ‘relative autonomy’ in the literature on the state (Miliband Reference Miliband1969; Poulantzas Reference Poulantzas1975; Skocpol Reference Skocpol1979). We have already considered the possibility that the state or a particular government could be dependent on group p j but autonomous from group p k . If it were possible to enumerate the relevant groups in society and classify them as a group from which the government is dependent or autonomous, then one could think of the government’s relative autonomy as the share of groups from which the government is autonomous. Such a metric could easily be extended to capture the relative autonomy of the state.

30 Hobbes Reference Hobbes1994 [1651], XIII: 8–9.

31 Locke Reference Locke1980 [1690].

32 Barry Reference Barry2002. This argument is nicely illustrated by the motto used by the Wallenbergs, an inconspicuous Swedish family whose huge wealth and political influence go back centuries. In the late 1990s, it was reported that they controlled 40 per cent of the Swedish stock market (The Economist 2006). Their family motto is ‘Esse non Videri’ (‘To be, not to be seen’).

33 Achen and Snidal Reference Achen and Snidal1989; Signorino and Tarar Reference Signorino and Tarar2006.

34 Huth Reference Huth1988. IR scholars often distinguish between general and immediate deterrence (Morgan Reference Morgan1977). General deterrence is about trying to prevent an adversary from making a challenge, whereas immediate deterrence is about trying to prevent an adversary from following through on a challenge that has already been made.

36 Przeworksi and Vreeland Reference Przeworksi and Vreeland2000.

37 von Stein Reference von Stein2005.

38 See, for example, Bas, Signorino, and Walker Reference Bas, Signorino and Walker2008; Lewis and Schultz Reference Lewis and Schultz2003; Signorino Reference Signorino1999; Smith Reference Smith1999.

41 Bachrachand and Baratz Reference Bachrachand and Baratz1962; Crenson Reference Crenson1971.

43 Block Reference Block1977; Miliband Reference Miliband1969; Przeworski and Wallerstein Reference Przeworski and Wallerstein1988. The contention that the state is structurally dependent on capital is equivalent, in our earlier language, to the claim that all governments $g_{i} \in G$ are dependent on at least some subset, p j , of capital owners.

44 There is an interesting debate in the literature over whether capitalists receive more favorable policies because they are powerful (as our model suggests), lucky or both (Barry Reference Barry2002; Dowding Reference Dowding1999; Haglund and Lukes Reference Haglund and Lukes2005; Hindmoor and McGeechan Reference Hindmoor and McGeechan2013).

45 Due to space constraints, we offer only a limited discussion of the role of incomplete information in our EVL game here. A more complete discussion can be found in the online appendix.

46 As Table 2 indicates, voice is never used in equilibrium in the extended EVL game. If the citizen knows the government will ignore her, she does not use voice. And if the government knows it will respond positively to the citizen’s demands, it chooses not to predate in the first place. As a result, the extended EVL game cannot explain why we ever observe citizens using voice. Again, it only takes some incomplete information on the part of the citizen to sustain an equilibrium in which the citizen uses voice. In such an equilibrium, both dependent and autonomous governments choose to predate. If a citizen with a credible exit threat believes that the government is dependent with a sufficiently high probability, she will use voice. If the government is dependent, it responds positively to the citizen’s demands. And if the government is autonomous, it ignores her and the citizen exits.

47 Lipset Reference Lipset1959. Evidence in support of these predictions has been provided by many empirical analyses in recent years (Ansell and Samuels Reference Ansell and Samuels2014; Barro Reference Barro1999; Boix Reference Boix2003, Reference Boix2011; Boix and Stokes Reference Boix and Stokes2003; Epstein et al. Reference Epstein, Bates, Goldstone, Kristensen and O’Halloran2006; Inglehart and Welzel Reference Inglehart and Welzel2005; Londregan and Poole Reference Londregan and Poole1996; Ross Reference Ross2001). Although evidence to the contrary would seem to come from Przeworski et al. (Reference Przeworski, Alvarez, Cheibub and Limongi2000), their famous claim that wealth does not increase the probability of democratic transitions is contradicted by results from their own fully specified model (p. 124).

48 Rueschemeyer, Stephens, and Stephens Reference Rueschemeyer, Stephens and Stephens1992, 29.

49 Acemoglu and Robinson Reference Acemoglu and Robinson2006, 318.

50 Given our purposes here, we restrict our attention to scenarios in which objection is a realistic option for the citizen, $c\leq \left( {\tau _{H} {\minus}\tau _{L} } \right)Y{\plus}\mathop{\sum}\nolimits_{t{\equals}1}^\infty {\delta ^{t} \left[ {\left( {1{\minus}\tau _{L} } \right)Y{\minus}E} \right]} $ . In effect, the costs of objecting must be small enough that the payoff the citizen would obtain from successfully objecting to the tax hike and having the government reinstate the low tax rate weakly dominates her payoff from immediately disinvesting. This condition is equivalent to E≤1−c, or c≤1−E, in our original EVL game.

52 Haber, Razo, and Maurer Reference Haber, Razo and Maurer2003.

53 Moore Reference Moore1966, 418. Ansell and Samuels (Reference Ansell and Samuels2014) also highlight how the modernization process can contribute to democratization via the emergence of a bourgeoisie. Like us, they note that democratization is likely to result from competition between ruling elites and the middle class, not from competition between ruling elites and the poor, as is assumed in the redistributive thesis of most economic models of democratization (Acemoglu and Robinson Reference Acemoglu and Robinson2006; Boix Reference Boix2003). However, their argument does not explain exactly why the ruling elites in a country would listen to the preferences of the middle class and not simply use their control of the state apparatus to predate upon them; they simply assume that the power of the middle class increases with its wealth and size. Ansell and Samuels (Reference Ansell and Samuels2014, 18) explicitly recognize that the precise source of the middle class’s leverage over the ruling elites is unclear in their story when they write that understanding the ‘conditions under which … economic elites will … rein in state authority remains a pressing issue for investigation’. In contrast, it is clear in our EVL democratization game that the power of the middle class comes from the mobility of its assets. A dependent ruling elite cannot simply predate on actors with mobile assets; it has to negotiate with them.

54 Bates and Lien Reference Bates and Lien1985. Interestingly, Bates and Lien (Reference Bates and Lien1985, 60–61) explicitly differentiate their argument from that found in Hirschman (Reference Hirschman1970). As we demonstrate, though, their story is entirely consistent with our own reformulation of Hirschman’s EVL framework.

55 See, for example, Acemoglu and Robinson Reference Acemoglu and Robinson2006; North and Weingast Reference North and Weingast1989; Stasavage Reference Stasavage2002.

56 There is also an economic resource curse – the idea that natural resources have a negative effect on economic performance. For an overview of the literature on the economic resource curse, see van der Ploeg (Reference van der Ploeg2011).

57 Ulfelder Reference Ulfelder2007.

61 Wiens, Poast, and Clark Reference Wiens, Poast and Clark2014.

64 Wiens, Poast, and Clark Reference Wiens, Poast and Clark2014.

65 Mehlum, Moene, and Torvik Reference Mehlum, Moene and Torvik2006; van der Ploeg Reference van der Ploeg2011; Wiens, Poast, and Clark Reference Wiens, Poast and Clark2014.

68 Acemoglu and Robinson Reference Acemoglu and Robinson2006.

73 Haggard and Kaufman Reference Haggard and Kaufman2012.

74 Ansell and Samuels Reference Ansell and Samuels2014.

76 Freeman and Quinn Reference Freeman and Quinn2010. Some other studies recognize that asset mobility is likely to condition the effect of inequality on democracy. However, this conditionality is ignored in their statistical analyses. Either asset mobility is entered into the model additively (Ahlquist and Wibbels Reference Ahlquist and Wibbels2012; Boix Reference Boix2003) or there is no statistical analysis at all (Acemoglu and Robinson Reference Acemoglu and Robinson2006).

77 Ansell and Samuels Reference Ansell and Samuels2014.

79 Wright and Winters Reference Wright and Winters2010, 62.

83 This line of reasoning applies primarily to aid that goes to the incumbent government in the recipient country. Some foreign aid goes to non-state actors and bypasses the government (Dietrich Reference Dietrich2013, Reference Dietrich2016). Such aid does not increase government autonomy and can increase the demand for democratic reform by strengthening opposition groups (Dietrich and Wright Reference Dietrich and Wright2014).

85 Djankov, Montalvo, and Reynal-Querol Reference Djankov, Montalvo and Reynal-Querol2008.

86 Altincekic and Bearce Reference Altincekic and Bearce2014; Bermeo Reference Bermeo2016; Wright and Winters Reference Wright and Winters2010.

87 Some have also argued that foreign aid is less fungible and less constant than natural resource revenue, making it less useful as a tool that incumbents can use to co-opt/repress opposition groups and reward supporters (Altincekic and Bearce Reference Altincekic and Bearce2014).

88 Alesina and Dollar Reference Alesina and Dollar2000; Bearce and Tirone Reference Bearce and Tirone2010.

89 Wright and Winters Reference Wright and Winters2010.

91 Morrison Reference Morrison2012.

93 Dunning Reference Dunning2004; Wright Reference Wright2009. There is evidence that foreign aid continues to hinder democratization in recipient countries that remain strategically important in the post-Cold War period (Bermeo Reference Bermeo2016).

94 Carnegie, Marinov, and Aronow Reference Carnegie, Marinov and Aronow2014; Girod Reference Girod2008.

95 Girod and Tobin Reference Girod and Tobin2016.

96 Foreign aid might still be helpful if the desired democratic reforms are politically costly and the recipient country lacks the necessary resources to compensate those who expect to lose out from the reforms and who would otherwise oppose democratization.

97 Dietrich and Wright Reference Dietrich and Wright2014.

98 Carnegie, Marinov, and Aronow Reference Carnegie, Marinov and Aronow2014.

99 Alesina and Perotti Reference Alesina and Perotti1994; Persson and Tabellini Reference Persson and Tabellini2003.

102 Alesina and Perotti Reference Alesina and Perotti1994; Przeworski and Limongi Reference Przeworski and Limongi1993; Ross Reference Ross2006; Sirowy and Inkeles Reference Sirowy and Inkeles1991.

104 Dahl Reference Dahl1971.

105 Of course, individuals may also use voice when it is ineffective in order to invest in a long-term movement by signaling their willingness to accept costs to other potential members of the movement (Chong Reference Chong1991).

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