Albert O. Hirschman, Exit, Voice, and Loyalty: Chapter 9, "The Elusive Optimal Mix of Exit and Voice"

In general, organizations do not respond equally well to voice and exit. This is not a problem, as long as an organization is responsive to some form of pressure to which it likely to be subjected. The pathological cases -- where exit is available but not responded to, or when voice is exercised but still nugatory -- call for reform, both by introducing institutional changes to make organizations more responsive to existing forms of pressure, and by persuading members and customers to try the alternative form of pressure.

Hirschman demurs from offering an optimal mix of exit and voice. He thinks that a stable, optimal mix is impossible. The effectiveness of any given recuperative mechanism can decay (just as organizations themselves do). Moreover, recuperation methods suffer from a feedback loop that makes whichever method is primary in a given context more dominant over time and makes the other increasingly neglected and even underestimated.

Albert O. Hirschman, Exit, Voice, and Loyalty: Chapter 8, "Exit and Voice in American Ideology and Practice"

Central place of exit in American history and self-conception: immigration (exit from former land), the frontier (exit from settled part of America), individual social mobility (exit from lower status groups, even in location).

Emerging black political movements have departed from individual mobility as the ideal -- seen as weakening the ability of the group to advance by depriving it of talented advocates.

Short discussion about why option of exit from the country or from its government seems so stunted despite its otherwise central role. At first cut this boils down to positing high entry costs of immigration. Not very compelling -- most Americans are not immigrants, even if their ancestors were. Then more discussion of peculiar factors that may suppress exit from government positions. the key suggestion is that one's role in government could be seen as especially important and consequential because the country is so powerful, and the consequences of it going astray absent one's influence could be so dire.

Albert O. Hirschman, Exit, Voice, and Loyalty: Chapter 7, "A Theory of Loyalty"

Question: under what conditions can exit and voice coexist? That is, when will voice still be used even when exit is available?

Answer: when individuals are (1) willing to trade off the certainty of exit for an uncertain prospect of recuperation of the product and (2) confident of their ability to influence the defective firm or institution.

Loyalty -- the attachment to the institution -- comes into play in the first case, but in fact both factors reinforce one another. People who care about an institution will tend to put themselves into a position where they can influence it, and people with influence will feel like they have more at stake.


Loyalty isn't an absolute barrier to exit. It is similar in its effect to a significant transaction cost.


Loyalty is most useful when (1) the use of voice is not straightforward but will require ingenuity and creativity (2) when the deteriorating product has close substitutes. The second case is paradoxical -- it seems irrational not exit when close substitutes are available -- but firms in this condition would have no chance to recuperate were it not for loyalty. Since products, institutions, and social groups are typically unevenly distributed on a scale of quality and prestige, with greater density on the lower end, the second case also means that loyalty is more useful at the lower end of the scale.


In using voice, the loyalist's most effective tool is the threat of exit. So we have the following seeming paradox: ease of exit makes voice less likely, but possibility of exit makes voice more effective. The conclusion which can be drawn from this is that voice will be most likely to be both used and effective when exit is possible but not too easy.

Notes on model of loyalist behavior:

• voice increases with deterioration of quality, and curve bends up at points where there would be exit without loyalty and where there is threat of exit with loyalty
• once loyal customers exit, they will not return until at least the quality associated with exit without loyalty is restored; the demand curve for exit is separate from the demand curve for return

Leaders of organizations and firms want to reduce both exit and voice. Will use high entry fees and high penalties for exit to make exit more difficult and to promote unconscious loyalist behavior. However, high entry cost induced loyalist behavior will ten to suppress the initial use of exit, but to make it more vigorous once it has started. If the cost of exit is high as well, however, the loss of threat of exit will make voice less effective. On the other hand, organizations where exit is difficult or impossible but entry cost is automatic (e.g., family, country) may actually sustain the most vigorous use of voice because members will see it as their due.

A special case of loyalty among influential members of organizations is brought into play under the conditions that (1) their departure would result in a further decline in quality and (2) they would continue to care about the quality even after exit. The first condition presumes that the departure of influential members has the opposite effect of the exit of market makers in monopoly or monopolistic competition; this is possible because the members play a part in the production of the good as well as its consumption. The second condition is rational under the assumption that full exit is impossible, which is the case for public goods. (Examples: Public schools, political parties, government administrations)

In such cases, members may be even less likely to depart as an organization gets worse, because they feel more strongly that is their responsibility to stick around to prevent things from getting yet worse. (With tongue only halfway in cheek, Hirschman uses the term spinelessness for this behavior). On the other hand, a member who does decide to exit under these conditions is more likely to use their exit as a tool of protest that will initiate continued use of voice from outside of the organization. Hirschman laments, however, that this use of exit by disgruntled public officials has fallen into disuse, replaced by officials treating their exit as a private matter -- one thinks of the stock "spending more time with my family" excuse.

Albert O. Hirschman, Exit, Voice, and Loyalty: Chapter 6, "On Spatial Duopoly and the Dynamics of Two-Party Systems"

By considering changes in quality not as absolute but as a trade off between preferences of different sets of consumers, Hirschman is able to analyze two-party political systems in terms of voice and exit.

In a monopolistic situation, where its share of the market can't be changed by exit, an organization will seek to produce a contested good at a quality that minimizes discontent.

In a situation where consumers at one end of the quality continuum have no substitute product, but the consumers at the other end are highly likely to defect to a substitute, voice is likely to be exercised only by the customers with nowhere to go. In this situation, profit (or market share) maximization would lead an organization to satisfy the volatile consumers no matter how great the discontent at the other end. But since minimizing discontent does come into play, a party will actually pursue a program at some distance from the desires of voters at the center of a two-party system.

Hotelling model of two-party system: parties will tend to move to the center, leaving voters on the outlying ends of the spectrum poorly served. Despite its pre-eminence, this thesis has not generally been borne out by the behavior of American political parties, which have positioned themselves at some distance on either side of the political center. One way of accounting for this failure lies in the model's neglect of elasticity of demand -- once a party moves far enough away from its base voters, it could begin to lose some of them. (To me, reduced turnout seems the most likely mechanism for this). Hirschman, however, does not find this criticism compelling, and offers a different explanation: the "captive" voters at the extreme ends of the continuum bring their parties closer to them by use of voice.

Albert O. Hirschman, Exit, Voice, and Loyalty: Chapter 5, "How Monopoly Can Be Comforted by Competition"

Economists' usual concern about monopolies is exploitation: they can limit production to maximize profit. Competition is an effective remedy for this problem. But another issue with monopolies is their potential for slack and decay. In this case exit may comfort a monopolist by relieving it of ts most burdensome customers (thus defusing the potential of voice to remedy the monopolist's deficiencies).

"Lazy" monopolists who welcome exit are found frequently when their market is based on location and a significant disparity in mobility exists between the majority of customers and the more quality-sensitive minority.

Sometimes monopolies can even promote selective exit. Hirschman's example here is from autocratic South American governments which encourage exile for political dissidents. He notes the consequences of this situation by comparing the autocratic politics of Latin America with the consensus-driven politics of Japan, where exit has been made more difficult by geography and a lack of destinations in which an exile could easily assimilate.

Albert O. Hirschman, Exit, Voice, and Loyalty: Chapter 4, "A Special Difficulty in Combining Exit and Voice"

In some cases, ease of exit entrenches poor quality . Institutions that are relatively impervious to the effects of exit (nationalized Nigerian railway, public schools, corporate management with respect to stockholders are given as examples) are less likely to restore quality if their most active and resourceful customers leave, because these are the customers who could most effectively exercise voice.

Hirschman makes an analysis of exit as a function of consumer surplus. Consumers with a large surplus -- those for whom the product actually holds much greater value than the market price -- exit most quickly when quality declines. A price increase has the opposite result -- consumers with a small surplus are the first to exit.

Hirschman identifies consumers who have a large surplus with those most concerned with quality, and also with consumers who can most effectively exercise voice, or at least have the most to gain by doing so. (This is key to the analysis of the result of a decline in quality).

Consumers concerned with quality will be most willing to exit when better quality (although probably more expensive ) good is available. Price-sensitive consumers will be most willing to exit when a cheaper (although lower quality) good is available. As a result, quality-conscious consumers will be quit to exit in response to deterioration when a better, albeit more expensive, good is available but slow to exit when inferior, although cheaper, goods are available.

Since quality conscious consumers are most likely to exercise voice, this has an important impact on a large class of "quality of life" public services which depend heavily on voice for the maintenance of quality: the gap in the quality of these services between the high and low end will tend to increase. This is especially true in societies with a high level of social mobility. Where exit upward to superior service regimes is restricted, however, consumers have more at stake in improving the quality of their existing services, and the gap will not grow as wide.

Albert O. Hirschman, Exit, Voice, and Loyalty: Chapter 3, "Voice"

Voice and exit are both optimally effective when exercised by only a portion of the clientele. If expression of dissatisfaction becomes too widespread, it hampers the ability of a firm or agency to respond. (This is not as obviously true to me as the debilitating effect of a too extensive use of exit.)


For any organization, one of these forms of response to deteriorating quality will dominate, and this keeps the other response from ever reaching a debilitating level. For firms in competitive markets, exit is dominant, so a firm would already have been destroyed by exit before voice could create a burden.


Voice can be understood at first approximation as a residual of exit. Voice gets exercised inversely to the proportion of customers who leave: it depends on the inelasticity of demand with respect to quality.


In undeveloped economies with few substitute choices of goods, there is more use of voice. In deeper markets with more choices, exit tends to prevail.


Where exit is the dominant response, any use of voice will be beneficial. The optimal combined response to a decline in quality is an initially elastic decline in demand -- rapid exit -- followed by by an inelastic decline that gives scope to the use of voice.


Voice can also be conceived of as an alternative to exit. In this case, voice is a primary response to declining quality, and exit is only resorted to if voice fails as a remedy. This pattern of response requires that the product or service is originally superior in quality. If it is originally perceived to be very close in quality to its alternatives, then substitutability is high and exit is a stronger option. It also depends upon the perception that voice can be effective in restoring the original superiority in quality.

Exercising voice also takes relatively greater effort than exit. For this reason, voice is not as likely to be exercised by consumers of a large number of different products -- the cumulative cost becomes prohibitive. It is more likely to be used by members of organizations, because the number of groups people belong to is not generally too large, or for bigger purchases, where the cost of using voice could be justified by the expected gain.

The efficacy of voice is also limited in competitive markets with many actors. This makes voice more likely to exercised by members of organizations or participants in markets with few significant participants -- venues where the expectation of effective influence is greater.

Recognition of voice as an available corrective mechanism can prompt efforts to create institutions and mechanisms to make its user easier. This shows an important difference between exit and voice: exit requires nothing more than the availability of a different choice, while the exercise of voice requires creativity. (Hirschman calls it an art.) This creates a bias in favor of exit, because decisions about which option to use are based on past experience. But since the use of voice needs to be adapted for each circumstance, there will likely be exactly fitting past exercise to draw upon.

Albert O. Hirschman, Exit, Voice, and Loyalty: Chapter 2, Exit

How does exit lead firms to repair lapses in quality? When customers leave, the firm loses revenue. If this loss is large enough, the firm will try to correct the failure. If the loss is too large, however, it will be unable to act. So for exit to work optimally there must, paradoxically, be some inert customers -- ones who will not respond quickly to a deterioration in quality.

In a situation where all producers in an industry produce flawed goods, exit may actually create an equilibrium in which firms do not lose money from lapses in quality. Customers are effectively exchanged between the competing firms as they leave one and buy from another. Exit wastes effort (looking for competing goods) that would be directed more usefully through voice if there were no competition. Effectively conceals the systemic failure in quality.

This assessment (collusive competition obscures poor quality and frustrates improvement in conditions) can be applied to non-economic institutions. Examples: multiparty democracies, competing trade unions.

Albert O. Hirschman, Exit, Voice, and Loyalty: Chapter 1, Introduction and Doctrinal Background

Fundamental question: how do organizations recover from lapses in efficiency? Options for clients of lapsed organizations roughly break down into exit (withdraw from interaction) and voice (remain but apply pressure).


Key premise: perfect competition is a poor model for organizational behavior, because slack is pervasive in organizations, including businesses. Slack tends to increase entropically until corrected.


Exit: economics. Voice: politics.