Rational Choice Institutionalism

Links » Sociological Institutionalism | Historical Institutionalism | Notes on: Political Science and the Three New Institutionalisms (Hall & Taylor 1996)

rooted in American political science of the 1970s

(Thin) Definition

Institutions as exogenous constraints on actor’s behaviour, i.e. institutions as rule systems or incentive structures that regulate behaviour of rational actors. Functionally, RCI views IIs as a way to centralise (and thus streamline) their efforts on an international scale. Further, IIs provide independence (which might be useful for “laundering” your position via an independent third party) and neutrality (possible arbitrator in conflicts).

Focus (Two sides of the institutional coin)

  • Emergence/Design of institutions (institutions as dependent variables); institutions as solutions to solve collective action problems or to reduce transaction costs. The assumptions are:
    1. cooperation voluntary (all actors agree cooperation is beneficial)
    2. actors are rational (choose options that maximise their utility function) and have fixed preferences
  • Effects of institutions on political behaviour (institutions as independent variables); institutions as a Nash equilibrium - none of the actors can unilaterally secure a more beneficial outcome for itself.


  • How can one explain the emergence and the effect of IIs given that actors are rational and seek to maximise their utility function at all times?

Core Assumptions of (Neoliberal) Rational Institutionalists

  • States are key, yet there are other important actors.
  • World politics is decentralised (not one single world government), yet there are institutions with orderly procedures
  • States behave rationally, seeking to maximise their interest
  • States seek to maximise absolute gains through cooperation; cooperation is valued
  • The gravest obstacle to successful cooperation is non-compliance or cheating by other states (free-riding)
  • Cooperation is difficult; states shift their resources to institutions if they provide states with opportunities to secure their national interests

Central Concepts

  • Market failures: institutional deficiencies that inhibit mutually advantageous cooperation
  • Coase Theorem: The presence of externalities (actors do not bear the full cost, or receive the full benefits of their actions) alone does not necessarily prevent effective coordination among independent actors. In other words, given a set of assumptions, efficient arrangements could be achieved even when the rules of liability favoured producers of externalities rather than their victims. The theorem only holds if three assumptions are met:
    1. A legal framework that establishes liability (supported by governmental authority)
    2. Perfect information
    3. Zero transaction costs

Core Argument

  • Since, in world politics, none of the assumptions hold, the Coase theorem needs to be inverted:

    In the absence of the conditions Coase specified, coordination will often be thwarted by dilemmas of collective action

  • Out of this inversion arise the central functions of regimes/institutions as facilitators of international bargaining. With regards to the first two conditions, cooperative solutions will be facilitated by institutions trough:

    1. Establishing mutual expectations about other actors’ patterns of behaviour through e.g. property rights. The aim is to create mutually acknowledged patterns of legal liability
    2. Providing low-cost information in a roughly equal way to all parties.
  • From the third condition, zero transaction cost, follows a more complex function for institutions because if transaction costs are too high, no bargaining will take place, but if they are too low, an infinite series of unstable coalitions may form. Hence the function of institutions in this regard can be described as follows:

    1. Altering the relative costs of transaction through issue linkage and the provision of a forum (e.g. legitimate bargains become less costly compared to illegitimate ones)
  • The creation of international regimes/institutions depends on the individual states’ cost-benefit analysis, i.e. regime creation becomes more likely,

    1. the higher the density of interdependence, and
    2. the lower the number of actoer, and
    3. the more the international power distribution approximates hegemony (“one state is powerful enough to maintain the essential rules governing interstate relations, and willing to do so” (Keohane 2012)



Keohane, Robert O. 2012. “Twenty Years of Institutional Liberalism.” International Relations 26 (2):125–38.

Graduate Student in International Relations, System Hacker at the FSFE

I am interested in all the ways computer technology reconfigures the political landscape.