Rational choice institutionalism

Last updated March 21, 2023

Rational choice institutionalism (RCI) is a theoretical approach to the study of institutions arguing that actors use institutions to maximize their utility, and that institutions affect rational individual behavior.^[1]^[2] Rational choice institutionalism arose initially from the study of congressional behaviour in the U.S. in the late 1970s.^[3] Influential early RCI scholarship was done by political economists at California Institute of Technology, University of Rochester, and Washington University.^[4] It employs analytical tools borrowed from neo-classical economics to explain how institutions are created, the behaviour of political actors within it, and the outcome of strategic interaction ^{[ disambiguation needed ]}.

RCI explains the creation of institutions as an attempt to reduce transaction costs of collective activity which would be significantly higher without such institutions.^[5] Institutions persist after their creation because they reduce uncertainty and allow gains from exchange. Rational choice institutionalism assumes that political actors within the institutional setting have a fixed set of preferences. To maximize those preferences actors behave highly instrumental through systematic foresight and strategic cost-benefit calculation.^[6] Institutions lay down the 'rules of the game', define the range of available strategies and the sequence of alternatives. The actors' behaviour will be highly influenced by the expectation how other players will bargain. The institutional environment provides information and enforcement mechanism that reduce uncertainty for each actor about the corresponding behaviour of others.^[7] This 'calculus approach' explains how the institutional setting influences individual behaviour and stresses how strategic interaction determines policy outcomes.

Erik Voeten writes that the strength of RCI approaches to institutions is that they allow "us to think about what institutions should look like if they were designed to optimally improve cooperation. This provides a normative benchmark."^[8] He argues that alternative perspectives cannot compete with RCI in terms of "its range of testable and generalizable implications."^[8]

Definition of institutions

RCI scholars tend to define institutions as "rules of the game". These rules structure the incentives of actors, and thus alters their behavior. One prominent RCI definition of institutions is provided by Jack Knight who defines institutions as:

sets of rules that structure social interactions in particular ways. These rules (1) provide information about how people are expected to act in particular situations, (2) can be recognized by those who are members of the relevant group as the rules to which others conform in these situations, and (3) structure the strategic choices of actors in such a way as to produce equilibrium outcomes.^[9]

According to Erik Voeten, rational choice scholarship on international institutions can be divided between (1) rational functionalism and (2) Distributive rationalism.^[8] The former sees organizations as functional optimal solutions to collective problems, whereas the latter sees organizations as an outcome of actors' individual and collective goals.^[8] Since individual and collective goals may conflict, the latter version of RCI accepts that suboptimal institutions are likely.^[10]

Explanations for suboptimal institutions

Principal-agent model

A key concept of Rational Choice Institutionalism is the principal-agent model borrowed from Neo-classical economics. This model is used to explain why some institutions appear to be inefficient, suboptimal, dysfunctional or generally go against the intentions of the actors who created the institution.^[11]^[8] The concept assumes that the principal enters into a contractual relation with a second party, the agent, and delegates responsibility to the latter to fulfil certain responsibilities or a set of tasks on behalf of the principal.^[12] Problems occur due to an asymmetric distribution of information which favours the agent. The latter enables the agent to pursue its own interest and engage in opportunistic behaviour – shirking - at the cost of the principal's interest.^[13] The principal's problem is how to control and limit shirking by the agent.

Domestic politics

RCI scholars may also argue that international institutional dysfunction may stem from domestic politics, as governments use these institutions both to solve problems between states but also to achieve domestic political outcomes.^[8]^[10]

Limitations

Rational Choice Institutionalism is frequently contrasted with Historical Institutionalism and Sociological Institutionalism. Historical Institutionalism emphasizes how small events and accidents may create paths from which it is hard to turn back from. Examining the actors involved in creating an institution and the contexts that they were operating in may provide better explanations for why particular institutions were created. Critical junctures – which can be small events and accidents – may lead to institutional change or set institutions on paths from which it is hard to turn back from. This is in contrast to Rational Choice Institutionalism where the creation of institutions, as well as institutional change, reflects optimal and efficient outcomes for actors. Historical institutionalists would rebut that by noting that many institutions are inefficient, and that these inefficiencies can be better explained through path dependency.

Both sociological institutionalism and historical institutionalism would argue against the suggestion that we can assume that actors have exogenous preferences (the notion that we can assume the preferences of actors). They would argue actors do not have stable and consistent preferences, and that scholars cannot assume that they hold a given set of preferences. As a consequence, these other approaches argue that it is unreasonable to assume that a Pareto-optimal equilibrium solution exists to collective action problems.

William H. Riker, a political scientist prominent for his application of game theory and mathematics in political science, argued that a key problem with RCI scholarship was the so-called "inherability problem", which referred to an inability to distinguish whether outcomes resulted from institutions or from the preferences of actors, which made it impossible to predict optimal outcomes.^[14]^[15]

Terry Moe argues that RCI neglects to consider the ways in which political institutions differ from other institutions, and that RCI neglects the role of power in shaping outcomes.^[16]^[17] In other words, Moe argues that RCI accounts of political institutions as structures of voluntary cooperation, mutual gains and solutions to collective action problems are unrealistic.^[16]^[17] Historical institutionalists make a similar critique as they argue that politics is shaped by policy feedbacks and path dependencies which mean that past policies cement or increase power asymmetries, which shapes the kinds of outcomes that are possible in the future.^[18]

In the context of Latin American politics, Kurt Weyland has argued that Rational Choice Institutionalism is overly focused on politics as it is conducted in legislative institutions and elections, as well as the formal rules and formal institutions of politics. He also argues that it insufficiently accounts for political change and crises, and overly focuses on microfoundations.^[19]

In an influential article (and later book), George Washington University political scientists Michael Barnett and Martha Finnemore argue rationalist accounts of institutions (such as those emphasizing principal-agent problems) cannot fully account for institutional pathologies.^[11]^[20] They provide a sociological institutionalist account of institutional dysfunction whereby institutions have powers derived from their rational-legal authority, and that these powers and autonomy may give rise to suboptimal outcomes.^[11]^[20]

Alexander Wendt has argued that rationalist accounts of institutional design often lack falsifiability: it is not clear how one would demonstrate that an institution was not rationally designed.^[21]

Alexander Wendt and Paul Pierson have also argued if actors are guided by a logic of appropriateness, rather than a logic of consequence, then the institutions that they design are not truly optimal.^[22]^[23] Both of them question that the actors that create institutions are capable of designing functional institutions (institutions that achieve the founders' goals).^[22]^[23]

James March and Herbert Simon criticize rational approaches to institutions, arguing that it is problematic to assume that actors have ordered preferences, actors understand the alternative choices available to them, and that actors pursue optimal alternatives (rather than satisficing alternatives). They argue that actors rely on routinized responses to problems that emerge, as opposed to evaluating and deliberating on the optimal response. This can be seen during episodes of uncertainty when actors respond in routinized ways, rather than craft original solutions to the newly emergent problems.^[24]

Hendrik Spruyt argues that the "pure rational choice variant of methodological individualism" (such as functionalist RCI approaches) is flawed because "we cannot simply deduce institutional outcomes from preferences or impute preferences from observed outcomes."^[25]

Related Research Articles

Neoclassical economics is an approach to economics in which the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good or service is determined through a hypothetical maximization of utility by income-constrained individuals and of profits by firms facing production costs and employing available information and factors of production. This approach has often been justified by appealing to rational choice theory, a theory that has come under considerable question in recent years.

Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory originated in the eighteenth century and can be traced back to political economist and philosopher, Adam Smith. The theory postulates that an individual will perform a cost-benefit analysis to determine whether an option is right for them. It also suggests that an individual's self-driven rational actions will help better the overall economy. Rational choice theory looks at three concepts: rational actors, self interest and the invisible hand.

William Harrison Riker was an American political scientist who is prominent for applying game theory and mathematics to political science. He helped to establish University of Rochester as a center of behavioral revolution in political science.

Bounded rationality is the idea that rationality is limited when individuals make decisions, and under these limitations, rational individuals will select a decision that is satisfactory rather than optimal.

Evolutionary economics is part of mainstream economics as well as a heterodox school of economic thought that is inspired by evolutionary biology. Much like mainstream economics, it stresses complex interdependencies, competition, growth, structural change, and resource constraints but differs in the approaches which are used to analyze these phenomena. Some scholars prefer to call their evolutionary theory by a different names. Samuel Bowles named it "evolutionary social science" and Joachim Rennstich called it "evolutionary systems theory".

International relations theory is the study of international relations (IR) from a theoretical perspective. It seeks to explain causal and constitutive effects in international politics. Ole Holsti describes international relations theories as acting like pairs of coloured sunglasses that allow the wearer to see only salient events relevant to the theory; e.g., an adherent of realism may completely disregard an event that a constructivist might pounce upon as crucial, and vice versa. The three most prominent schools of thought are realism, liberalism, and constructivism.

Institutions are humanly devised structures of rules and norms that shape and constrain individual behavior. All definitions of institutions generally entail that there is a level of persistence and continuity. Laws, rules, social conventions and norms are all examples of institutions. Institutions vary in their level of formality and informality.

New institutionalism is an approach to the study of institutions that focuses on the constraining and enabling effects of formal and informal rules on the behavior of individuals and groups. New institutionalism traditionally encompasses three strands: sociological institutionalism, rational choice institutionalism, and historical institutionalism. New institutionalism originated in work by sociologist John Meyer published in 1977.

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Reflectivism is an umbrella label used in International Relations theory for a range of theoretical approaches which oppose rational-choice accounts of social phenomena and positivism generally. The label was popularised by Robert Keohane in his presidential address to the International Studies Association in 1988. The address was entitled "International Institutions: Two Approaches", and contrasted two broad approaches to the study of international institutions. One was "rationalism", the other what Keohane referred to as "reflectivism". Rationalists — including realists, neo-realists, liberals, neo-liberals, and scholars using game-theoretic or expected-utility models — are theorists who adopt the broad theoretical and ontological commitments of rational-choice theory.

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treats the “actorhood” of modern individuals and organizations as itself constructed out of cultural materials – and treats contemporary institutional systems as working principally by creating and legitimating agentic actors with appropriate perspectives, motives, and agendas. The scholars who have developed this perspective have been less inclined to emphasize actors’ use of institutions and more inclined to envision institutional forces as producing and using actors. By focusing on the evolving construction and reconstruction of the actors of modern society, institutionalists can better explain the dramatic social changes of the contemporary period – why these changes cut across social contexts and functional settings, and why they often become worldwide in character.

Feminist institutionalism is a new institutionalist approach that looks at how gender norms operate within institutions and how institutional processes construct and maintain gender power dynamics. Feminist institutionalism focuses on how institutions are gendered and how their formal and informal rules play a part in shaping political life. It offers a new way of interpreting the formation of institutions that goes beyond traditional views by accounting for the gendered stigma and gendered outcomes that comes with institutions. As a result, feminist institutionalism is changing the face of various institutions by providing awareness into their very own dynamics of inclusion and exclusion.

The logic of appropriateness is a theoretical perspective to explain human decision-making. It proposes that decisions and behavior follow from rules of appropriate behavior for a given role or identity. These rules are institutionalized in social practices and sustained over time through learning. People adhere to them because they see them as natural, rightful, expected, and legitimate. In other words, the logic of appropriateness assumes that actors decide on the basis of what social norms deem right rather than what cost-benefit calculations suggest best. The term was coined by organization theorists James G. March and Johan Olsen. They presented the argument in two prominent articles published by the journals Governance in 1996 and International Organization in 1998.

Rational choice is a prominent framework in international relations scholarship. Rational choice is not a substantive theory of international politics, but rather a methodological approach that focuses on certain types of social explanation for phenomena. In that sense, it is similar to constructivism, and differs from liberalism and realism, which are substantive theories of world politics. Rationalist analyses have been used to substantiate realist theories, as well as liberal theories of international relations.

References

↑ Knight, Jack; Sened, Itai, eds. (1996). Explaining Social Institutions. Ann Arbor, MI: University of Michigan Press. pp. 95–120. doi:10.3998/mpub.14827. ISBN 978-0-472-10588-5.
↑ Calvert, Randall (1995). "Rational Actors, Equilibrium and Social Institutions". Explaining Social Institutions.
↑ Hall, P. A., & Taylor, R. (1996). Political Science and the Three Institutionalisms. Political Studies, 44, 936-957
↑ Jupille, Joseph; Caporaso, James A. (2022). Theories of Institutions. Cambridge University Press. p. 9. doi:10.1017/9781139034142. ISBN 978-1-139-03414-2. S2CID 245805749.
↑ Williamson, Oliver (1985) The Economic Institutions of Capitalism, New York, Free Press
↑ Shepsle, K. (2005). Rational choice institutionalism. Harvard University Press.
↑ Hall, P. A., & Taylor, R. (1996). Political Science and the Three Institutionalisms. Political Studies, 44, 936-957
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↑ Pierson, Paul (2000). "Increasing Returns, Path Dependence, and the Study of Politics". The American Political Science Review. 94 (2): 251–267. doi:10.2307/2586011. hdl: 1814/23648 . ISSN 0003-0554. JSTOR 2586011. S2CID 154860619.
↑ Weyland, Kurt (2002-03-01). "Limitations of rational-choice institutionalism for the study of Latin American politics". Studies in Comparative International Development. 37 (1): 57–85. doi:10.1007/BF02686338. ISSN 1936-6167. S2CID 144218661.
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↑ Wendt, Alexander (2003), "Driving with the Rearview Mirror: On the Rational Science of Institutional Design", The Rational Design of International Institutions, International Organization, pp. 259–290, doi:10.1017/cbo9780511512209.012, ISBN 9780521533584
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↑ Spruyt, Hendrik (1994). The Sovereign State and Its Competitors: An Analysis of Systems Change. Vol. 176. Princeton University Press. p. 26. doi:10.2307/j.ctvzxx91t. ISBN 978-0-691-03356-3. JSTOR j.ctvzxx91t. S2CID 155957216.