Entering text into the input field will update the search result below

The Exit, Voice, And Loyalty Model

Jun. 10, 2020 1:31 PM ET7 Comments
Macronomics profile picture


  • Introduction.
  • Macro and Credit – Overshooting creates spillover effects onto other markets.
  • ELV Model ? Civil unrest is a rising global trend.

“Now I believe I can hear the philosophers protesting that it can only be misery to live in folly, illusion, deception and ignorance, but it isn't -it's human.” - Desiderius Erasmus

Looking at the violent protests rocking the “civilized” world in general and the United States in particular, in conjunction with the fastest recovery on record for financial markets, in effect pushing again “Gini coefficients” to dizzying 1929 levels, when it came to selecting our title analogy we reminded ourselves of “the Exit, Voice and Loyalty Model”. The Exit, Voice and Loyalty Model aka EVL is another application of the Nash equilibrium in game theory.

The ELV model is used in the fields of comparative politics and organizational behavior. It is an extensive form game used to model interactions typically involving negative changes to one player's environment by another player. These concepts first appeared in Albert Hirschman's more broadly focused 1970 book, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States. The framework presented in Hirschman’s book has been applied to topics such as protest movements, migration, political parties, and interest groups, as well as to even personal relationships. The basic concept are as follows: members of an organization, whether a business, a nation or any other form of human grouping, have essentially two possible responses when they perceive that the organization is demonstrating a decrease in quality or benefit to the member: they can exit (withdraw from the relationship); or, they can voice (attempt to repair or improve the relationship through communication of the complaint, grievance or proposal for change). For example, the citizens of a country may respond to increasing political repression in two ways: emigrate or protest. Similarly, employees can choose to quit their unpleasant job, or express their concerns in an effort to improve the situation. Disgruntled customers can choose to shop elsewhere, or they ask for the manager.

This article was written by

Macronomics profile picture
During my career I have had different roles within various banks, covering various products, from FX to High Grade Bonds. I have always been passionate about markets and particularly on Macro trends. I am currently working in different role in another company and still in contact with the credit market business.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (7)

The Nattering Naybob profile picture
@Macronomics Another excellent piece, Roterodamus and a realist indeed. Apropos given the social disorders... He who allows oppression shares the crime.
No citizens will be 'exiting' and calm will soon be restored.....i am always reminded of Achebe's book 'Things Fall Apart'
The 'superrich' and their acolytes have always exerted 'controls & influence' over the masses, and placate them with affordable illusions & diversions.....the secret sauce is indoctrination with the greatest amount of 'freedoms' without affecting wealth creation.....
Salmo trutta profile picture
re: "“The Quantity Theory of Credit proposes that increasing the allocation of credit money for non-GDP transactions (transactions that do not increase GDP (gross domestic product) will have no impact on economic growth, and will instead promote asset price inflation (Lyonnet & Werner, 2012, p. 95; Werner R. A., 2005)."

Absolutely, the transfer of title to goods, properties, or claims thereto represent leakages in aggregate demand. An unspent balance is one that does not add “value to product”. Financial investment draws off a net volume of funds that would otherwise have been spent on current output.

Transfer payments are also a leakage from the main income stream because they involve expenditures which do not directly finance current output.

Prima facie evidence of a gross leakage which collects in the form of unspent balances is the 11 trillion dollars in savings frozen in the payment’s system. From the standpoint of the economy, banks do not loan out existing deposits. They create deposits whenever they lend/invest. All bank-held savings are lost to both consumption and investment.

Unspent balances, stoppages in the flow of funds derived from the main income stream have a direct and immediate dampening effect on the economy. An expansion of savings deposits in the commercial banks shrinks aggregate demand and therefore produces adverse effects on GDP.

The expiration of the FDIC’s unlimited transactions deposit insurance, release of savings, decrease to $250,000 from unlimited, is prima facie evidence. It caused the taper tantrum (my "market zinger" forecast). The opposite flow of funds, remunerating interbank demand deposits ,has the obverse impact.

Danielle Dimartino Booth’s in her book gets it backwards too: “Fed Up”, pg. 218
“Before the financial crisis, accounts were insured up to the first $100,000 by the FDIC. That limit kept enormous sums *in the shadow banking system* [sic]. That, new money substitutes, fueled the housing bubble.

Likewise, an excess of savings over real investment outlets also exerts a contractive economic influence.

As in Gresham's law, a statement of the principle of substitution: "the bad money (IBDDs) drives out good (savings)". The more valuable money is held (viz., income not spent), and the less valuable is used as a medium of exchange (aka: “shinplasters”).

Asset price valuations are driven from the appraisal of loan collateral, which generally depend upon Gresham’s law: "a statement of the least cost “principle of substitution” as applied to money: that a commodity (or service) will be devoted to those uses which are the most profitable (most widely viewed as promising). In other words, it's dependent upon favorable capital gains taxation.
hawkeyec profile picture
@Salmo trutta

I often see your comments on this site and find them very interesting. I have never before seen Gresham's Law extended, as you have done in this comment, to essentially be the source of what I learned as a key basis for real estate investment in the form of the principle of "highest and best use."
Salmo trutta profile picture
From "Money and Banking", pg. 36, 2nd edition, Houghton Mifflin, 1964, Leland James Pritchard Ph.D. Economics, Chicago 1933, M.S. Statistics, Syracuse
hawkeyec profile picture
That book was new just when I was taking M&B. Assigned a different book. Didn't take the course again as it wasn't a core econ course in my finance doctoral lineup. Should have been, along with monetary theory, but I was more into practical pain in those days. We had a big hitting monetarist at Ohio State in those days. He wore a neon sign saying beware of dog.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

Related Analysis

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.