Hirschman & SSP              

Situation

Institutional

Structure

(Conduct

Activity)

Performance

1. Specific Assets 

"Standardized durable consumer goods requiring large outlays" 

p. 42.

a. Exit Right 
 
 

b. No Exit Right 

c. Mix of alert and inert customers. Status. Loyalty.

Exit Chosen 
 
 

Voice 

Voice Chosen. Keep buying.

a. Firm given no time 
to recuperate 
Loss of spec. assets 

b. Spec. assets saved 

c. Spec. assets saved

Hirschman seems to imply asset losses as a reason why firm "wipe out" is undesirable. He contrasts his concern with the traditional model where recovery of a particular firm is not essential because its "factors are hired by others." p.2. -- the case could be strengthened by more attention to specific assets. 

Hirschman does not talk much about rights, but of the relative costs of exit vs. voice. He describes cases where exit is impossible. This could be a matter of institutional policy prohibiting, exit or just a lack of available substitutes in the economy. He doesn't give a lot of explicit attention to public policy, but does refer to collective action making exit more costly and voice cheaper. What influences the relative cost of exit and voice? 

Williamson would be comfortable with the above, but focus on the firm's attempts to avoid the asset loss in advance, rather than focus on recuperation. So under structure he would add hierarchy and market. Note where different paradigms focus our attention. Williamson would approve of firms contracting for "hostages" to prevent exit. 
Specific Assets 
with uncertainty.
d. Vertical integration or 
use of hostages and non-standard contracts. 

e. Market (Exit right)

Exit foregone 
 
 

Exit occurs 

Opportunism

d. Spec. assets saved 
Low per unit cost 
 

e. Assets lost 

High per unit cost technology used 

At one level, Williamson predicts that with spec. assets, (d) above will be chosen by economizing firms. At the policy level he advises a liberal anti-trust policy structure so that firms have (d) in their opportunity set. 
Page number refer to Exit, Voice and Loyalty, 1970. 

Situation

Institutional

Structure

(Conduct

Activity)

Performance

2. P.D. 

Trap 
"Cumulative 
Quality 
Deterioration 
Possibility" 

e.g. Urban neighborhood p.79 
(Similar to Schelling)

a. Exit 
"most quality-conscious 
customers or members are the first to exit. 

b. Voice (facilitated by inst. barriers to exit) 
 

c. Loyalty 
e.g. Infant industry tariffs


 


 
 b. The most creative people are "pushed" to help find solutions 
(Enablement?)

a. Quality continues to deteriorate. The poor are "left behind"; can't escape. "Brain Drain." 

b. Escape the trap. 

More "social inventiveness." 

c. Local industry becomes efficient?

3. Consumer can't tell quality which pleases her. 

HIC p.26 

"Product might reveal only through use some of its faults."

a. Exit; Competition 
 
 
 
 
 
 
 

b. Monopoly 

c. Voice

Consumers hunt from among available substitutes a. Consumers (or voters) cycle among products from different firms (maybe shampoos) and firms can't even tell it's going on and learn nothing about the dissatisfaction or how to remedy it. 

b. Opposite of above (maybe) 

c. " " "

"The competitive solution may be inferior to one in which a single firm is the sole producer." 27 

 What is researchable here? H. searches for a case when competition produces "consumer" cycling between organizations with no reform of the organization, and he finds it in union competition p.29. So what? Would he recommend a law prohibiting competition? In the Nigerian railroad case, would he recommend prohibition of trucks so voice would be focused on the rail organization? If we find many cycling cases without reform, it does give us pause before we recommend and encourage competition as the answer to all problems. On the other hand, if voice were working on the monopoly firms, we wouldn't be tempted to recommend competition in the first place. Cycling might cause us to recommend competition (simply on the general theory that more competition is always good) when a monopoly (public or private) is working tolerably well -- leave the structure alone.

What do we get from different paradigms? While Hirschman never used the term "high information costs" his situation fits that category. When PPPC examines the category, it raises institutional choice questions in terms of laws of consumer protection, labeling, and product liability. Hirschman raises questions in terms of exit and voice and generalizes from firms, political parties, to unions. So the different but related conceptualization opens up new institutional variables and lets us learn the consequences of alternative kinds of rights in many different cases which have the same kind of interdependence (situation).
 
 

Situation

Institutional 

Structure

(Conduct

Activity)

Performance

4. HEC 

e.g. 
 
 
 
 
 
 
 
 
 
 
 
 

a. Exit allowed 


 
 
 ......................(Can you


 

 
 
 fill this in?) 

Free riders
5. Non-optional 

MC=0 

He calls them "difficult exit from public goods" 

e.g. Foreign policy 

Exit not available, not because of institution, but because of inherent character of the good. 

p. 101, 104 

e.g. Effect of level of education in the community 

p. 102.

a. Voice from Within. 
     Loyalty. 
 
 
 

b. Could resign membership in the organization, but not be able to escape its effects. 
 

b-1 Voice from Without 
 

b-2 Cop out

a. Individual stays with organization, but tries to reform it. The greater the crisis, the greater the loyalty. 
 

.b. Resign. Can stop being member producer, but not consumer. 
 
 

b-1 Resign. but protest

a. Recuperation possible. 

Individual bears "shame". 
 

b. No recuperation. 

Organization and public not aware of reasons for resignation. 

b-1 Individual feels "relief". May stimulate recuperation. 

b-2 No recuperation, Individual thinks they can escape, but are confused. "Malaise". 

Note in (5),a that some of the performance variables are psychological states of individuals. Note the implications of Hirschman's institutional variables tied to MC=0 are quite different from the institutional variables noted in PPPC (namely, "who chooses the quality of the good" and "who pays fixed cost". It is the difference between recuperation to an agreed upon standard vs. Conflict over the standard.

810-SSP\hirsch.htm

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