Christina Maimone
PS311 – Week 3 Response
Knight’s Bargaining Theory of Institutional Change
Many of the theories of institutional change lack descriptions of the mechanisms by
which change occurs. The forces that contribute to change are developed, but the processes by
which these forces act upon society to produce changes in institutions are noticeably absent. In
addition, many theories focus on the collective benefits of institutions as the reason why such
institutions are established. Rational actors are portrayed as contributing to the development of
collective benefits because it is in their interest to do so. This approach ignores the distributional
properties of institutions and differences in resources and power possessed by actors in society
by assuming incorrectly that the collective benefits of institutions would be preferred over
individual gains in distributional advantage possible through institutions. Jack Knight, in
Institutions and Social Conflict, provides an important contribution to the literature on
institutional creation and change by developing a micro-level account of how rules, and then
institutions, are created that is based in asymmetries of power and resources. His analysis of
how institutions change, however, lacks the emphasis on the roles actors adopt during
interactions that would more accurately account for changes in institutions over time.
Knight defines social institutions as “a set of rules that structure social interactions in
particular ways” and of which knowledge is shared by members of the community (p. 2). The
focus of his analysis is on self-enforcing informal institutions, although he does discuss the role
of the state or another third-party as an enforcer of sanctions. He begins his argument by
criticizing existing classic and contemporary theories of institutional change, highlighting their
misplaced focus on development of collective benefits and lack of micro-level mechanisms by
which change occurs. In doing this, Knight firmly establishes the point at which he is entering
the discussion about institutional change and provides a clear picture of the motivations for his
work and the theories against which he is arguing. He then attempts to address the failings he
finds in existing theories by looking at the distributional effects of institutions and the conflict
resulting from those effects. He develops how asymmetries of power, resulting from
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asymmetries of resources, influence change. To do this, he adopts a rational choice model
because of its appropriateness for situations in which competing interests are present.
The bargaining theory of institutional emergence and change that Knight builds starts
with the interactions between actors in society. Interactions often offer the potential for mutual
benefits for the participants, as emphasized by theories attributing institutional development to
collective benefits; however, these benefits may be distributed to the actors at different rates. By
using the power that they bring to interactions, actors attempt to influence the outcome of
interactions to benefit them. Actors exert power by attempting to restrict the choices of others
through the use of their resources. They want to use credibility, risk aversion, and time
preferences in their favor. For example, consider a situation where players A and B would both
benefit by choosing to go the same direction (Fig. 1). Both A and B will benefit if either (L, L)
or (R, R) is the outcome, but A will benefit more from (L, L) and B from (R, R). Which of these
two potential outcomes is chosen will depend on the resources the players can bring to bear in
bargaining over this conflict. If player A is in a resource situation that enables him to bargain
longer or risk losing the benefits of the interaction, he is in a position to constrain his own choice
to L in a way that B will find credible. If B finds A’s assertion of choosing L no matter what
credible, he will chose R in the attempt to maximize his benefit given the constraint A has placed
upon him. Given the resource situation of the two players, the outcome, or rule, that results
Player A
Player B
L
R
R
0, 0
3, 5
L
5, 3
0, 0
Figure 1 – Potential Interaction
when any actors face a similar interaction and occupy similar roles to players A and B is
expected to be the same. Since the outcomes of particular interactions are repeated, rules about
how actors in particular roles facing particular interactions should behave develop. These rules
provide information about the probable future actions of others and the resulting sanctions (loss
of benefits) for those who do not follow the rules.
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A rule becomes institutionalized as knowledge about the expected actions of those
occupying the roles involved in a given interaction is shared. This sharing is accomplished
though a combination of observation of interactions in society and consistent experiences of
multiple actors placed in similar situations. Rules can be established as institutions largely
because the distribution of resources is such that people can be divided into roles based on
similarities in resources that they possess. Rules can be established between roles instead of
between unique individuals, which allows for rules that emerge from interactions to be widely
applicable to many members of the community.
Knight addresses the issue of institutional change by arguing that when the distribution of
resources or the relative bargaining power of actors changes, possibly as a result of the current
institutional arrangement, renegotiation and bargaining will be undertaken as it was originally.
This leads to the possible formation of new rules that can again be institutionalized in the same
manner as before. While Knight provides a good account of institutional development, his
argument about institutional change neglects what is actually occurring when distributions of
resources are altered. It is the roles that actors occupy within society that change significantly,
not the rules that emerge from interactions between actors in these roles.
Using the rational choice model that Knight does, the rule that will emerge from actors
with given resources interacting within a benefit structure can be predicted. Consequently,
current institutions are aptly conceptualized as a subset of the infinite set of rules that are
predictable by applying rational choice to any given combination of actors, resources, and
benefit structure. Institutional change then becomes the shifts that occur in the composition of
the subset of rules currently in place. The rules that comprise any given subset are determined
by the roles that actors within society occupy. Changes in distributions of resources thus affect
institutional change by changing the roles that people occupy in the community, since roles are
defined in terms of the resources actors possess.1 The key to understanding institutional change
is thus the change in roles that actors inhabit as a result of changing resource distributions, not
the rules currently in play in the community. The roles are interesting because, unlike rules, they
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Changes in distributions could also affect benefit structures by altering the resources available for gain in any
given interaction. However, since distributional changes are likely to have wide-ranging effects, it is unlikely that
benefit structures will be altered without changes occurring in the roles actors inhabit. The focus on roles is not
misplaced. Situations where both roles and benefits change add more complexity to the process without negating
roles as the unit of change. The benefit structures are simply the arena in which roles interact. We should be more
concerned with the actors than the scenery.
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are not a given once a rational choice model is assumed. There is substance to roles that actors
adopt, such as conflict between roles an actor plays, degrees of identification by actors with
roles, and opportunity for ideological influences, that is absent from rules dictating expected
behaviors. Emphasizing roles provides a place out of which further research can grow.
This focus on roles does not remove the emphasis that Knight places on changes in
resource distributions for institutional change. It does, however, make distributional changes
important for the slightly different purpose of understanding the adoption and dismissal of roles
by actors in society. The question of institutional change becomes the question of how resources
shift within society. Besides the influence of current institutions, technology (which is seen in
North’s argument) and ideology (again, seen in North’s argument but more forcefully illustrated
in Geddes’ work) both have the potential to create shifts in resources and thus affect institutional
change. A substantial amount of additional work is needed to understand the changes in resource
distributions and the translation of resources into relevant forms of power for conflicts.
Knight’s work on institutional change lodges itself firmly into the existing body of work
and pushes the field in the right direction – toward incorporating understandings of the influence
of power and resource asymmetries and providing micro-level mechanisms by which
institutional change actually occurs. A different angle on Knight’s proposal of institutional
change provides a basis for investigating the unit of change that is not possible by focusing on
predictable interest-based rules. The focus should be on the change in roles that motivates
institutional change rather than the change in the rules at play in society at any given time. Roles
provide a natural entry point for tying macro-level ideological issues into the micro-level
mechanisms. Focusing on roles also places the actors, the generators of technological change, in
the center of research on institutional change, encouraging investigations of how resources are
generated and distributed. Research that continues in Knight’s path and picks up questions of
technological and ideological change is on the right track for better understanding institutional
change.
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