Above Is the Exit, Voice, and Loyalty Game Between the State

question 6

Essay

Above is the Exit, Voice, and Loyalty game between the state (S) and the citizen (C). E is what the citizen gets from her exit option. R is what the state gets from the support (revenue) of the citizen. 0 is what the citizen gets for remaining loyal to the state. c is the cost for the citizen of exercising her voice option.
For the following questions, let R =2. Let c = 0.25.
-Given that the state depends on the citizen in this example (R > 1), to what extent does the state's behavior depend on the attractiveness of the citizen's exit options?

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Definitions:

Network Effects

Increases in the value of a product to each user, including existing users, as the total number of users rises.

Rent-seeking Behavior

Activities undertaken by individuals or firms to increase their own wealth without creating new wealth, often through manipulating the social or political environment in which economic activities occur.

X-inefficiency

X-inefficiency occurs when a firm lacks the incentive to control costs, leading to inefficiency and higher expenditure than is necessary for the level of output produced.

Economies of Scale

Economies of scale refer to the cost advantage achieved by an increase in production, which typically leads to a reduction in average cost per unit as scale increases.