Exit, Voice, and Loyalty

question 11

Multiple Choice

Exit, Voice, and Loyalty
Below is the Exit, Voice, and Loyalty game between the state and the citizen. Recall that E is the payoff that the citizen gets when she exits, L is the payoff that the state gets from retaining a loyal citizen, 0 is the payoff that the citizen gets from remaining loyal, and C is the cost that the citizen must pay for using voice.
Let E = 0.5, let L > 1, and let C = 0.25.

-What is the subgame perfect Nash equilibrium or equilibria for the game if you use these payoff values? Recall that the equilibrium should be written in the following form: (citizen's move at her first node, citizen's move at her last subgame, state's move at his [only] subgame) .

• A) voice, exit; respond
• B) voice; exit
• C) voice; respond; exit
• D) exit, exit; respond
• E) voice, respond; ignore

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Definitions:

Cash Account

An account that records all transactions involving cash, including receipts and payments, reflecting the company's cash flow.

Unearned Management Fees

Income received by a company for services yet to be performed and is recorded as a liability until those services are delivered.