Explaining Institutional Change: Policy Areas, Outside Options, and the Bretton Woods Institutions

I propose and test a theoretical framework that explains institutional change in international relations. Like firms in markets, international institutions are affected by the underlying characteristics of their policy areas. Some policy areas are prone to produce institutions facing relatively little competition, limiting the outside options of member states and impeding redistributive change. In comparison, institutions facing severe competition will quickly reflect changes in underlying state interests and power. To test the theory empirically, I exploit common features of the Bretton Woods institutions—the International Monetary Fund and World Bank—to isolate the effect of variation in policy area characteristics. The empirical tests show that, despite having identical membership and internal rules, bargaining outcomes in the Bretton Woods institutions have diverged sharply and in accordance with the theory.