Rational Choice Institutionalism views actors as a maximizer of their self-interest. It also believes that the political actors engage in highly sophisticated calculus and institutions as the product of this rational thinking. Although Rational Choice Institutionalism is not completely different from Historical Institutionalism, they have many similarities, but these two schools of institutionalism developed independently of each other. There have been no intellectual exchanges between the two.

Rational Choice Institutionalism was initially inspired by the observation of a phenomenon in the context of American Congressional behavior which could not be explained by the assumptions of the conventional Rational Choice postulate.

According to the conventional Rational Choice postulate, the individuals are rational choice makers. In such a situation, based on their calculation, there should be a rapid change in the pattern of support from one bill to another. Securing a stable majority in such a situation should have been a problem. But in practice, considerably stable majorities are found. 

Rational Choice analysts, in the late 1970s, tried to find an explanation for this phenomenon. They turned to institutions to get an explanation. They argued that the reason behind the stable majority for legislation is that the rules of procedures and committees of congress structure or shape the choices and information available to the members. Some others went on to show parties also structure deliberations in the congress. So, Rational Choice Institutionalists say institutions solve many of the collective action problems.

The Rational Choice drew fruitful analytical tools from the ‘new economics of organization which emphasizes the importance of property experts, rent-seeking transactional costs. The argument is that the development of a particular organizational form can result in the reduction of transaction costs of undertaking the activity compared to the costs one would incur without an institutional setup. These theories focused on institutional mechanisms, whereby principals’ can monitor and enforce compliance of their ‘agents.’

Characteristics of the Rational Choice Institutionalism Approach:

(i) Rational Choice Institutionalism employs a characteristic set of behavioral assumptions such as that actors have a fixed set of preferences or tasks. It believes that these actors behave entirely instrumentally to maximize the attainment of those preferences, and they do so in a highly strategic manner with extensive calculations.

(ii) Rational Choice Institutionalism views politics as a series of collective action dilemmas. A collective action dilemma is an instant or a manner of public engagement which is less than optimal in terms of benefits to the community as a whole. It is an instance where rational self-interested individuals, while acting to maximize their preferences, likely produce an outcome that is collectively sub-optical. An alternative course of action and thus outcome is possible in such situations, which would make at least one person better off without making any others worse off. Now, the Rational choice Institutionalists have found that actors are prevented from taking a collectively superior course of action due to the absence of institutional arrangement that would guarantee complementary behavior from others. The presence of such institutions can thus solve the problems.

(iii) The contribution of Rational Choice institutionalism is to show the role that strategic interaction has in determining political outcomes. The major arguments are:

  1. An actor’s behavior is likely to be guided by strategic calculus; and
  2. This calculus is deeply influenced by the actor’s expectations about how others are likely to behave.

As laws and institutions specify and delimit reasonable courses of action, thus actors’ behavior and interactions between various actors in society could be said to be institutions-by laws, norms, etc. This clarifying thing reduces uncertainty about the actions of other rational, calculating individuals or actors and thereby leads all the actors towards particular calculations and potentially better social outcomes.

(iv) Rational-Choice Institutionalists explain the origin of the institutions distinctively. They explain the existence o the institution by reference to the value the functions of the institutions have for the affected actors. They assume that actors create the institution because of the value of the functions performed by the institution.

Thus the process of institutional creation is based on the voluntary agreement by relevant actors. If there is an issue of competitive selection, i.e., if there are possible alternative institutions, then a particular institution out of them would be selected because it would provide more benefits to relevant actors than alternative institutional forms.

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