The Capability Paradox of Cooptation: Inter-institutional Cooperation in Global Finance

Contemporary international order faces increasing institutional complexity, with newly created challenger institutions operating alongside legacy institutions with overlapping mandates and memberships. While existing political and functional theories explain why dissatisfied states create challenger institutions, they fail to account for significant variation in emerging relationships between challengers and legacy institutions—ranging from persistent competition to substantive collaboration. We argue this explanatory gap stems from theories' implicit assumption of horizontal, symmetrical relationships among institutions. However, legacy-challenger relations are fundamentally asymmetric: legacy institutions possess substantially greater authority while challenger institutions have relevant capabilities but lack equivalent institutional standing. This creates an authority-capability disjunction that standard cooperation theories, which model behavioral adjustment among equals, cannot adequately address. Drawing on strategic cooptation theory - which explicitly addresses asymmetric relationships through exchanges of privileges for support rather than behavioral reciprocity - we develop a capability paradox hypothesis: challenger institutions with higher capabilities are paradoxically more likely to be coopted, and coopted more substantively, than their less capable counterparts. We theorize that cooptation outcomes depend on political incentives (taming opposition, gaining influence) and functional incentives (enlisting competence, improving governance), which emerge at different capability thresholds. We test this through paired comparisons in global finance: the AIIB versus NDB (challenging the World Bank); CMIM versus CRA (challenging the IMF); and Chinese versus BRICS credit rating agencies (challenging the Big Three). Within each pair, higher-capability challengers consistently experienced more substantive cooptation. Our findings reveal how capability differentials—not just dissatisfaction or functional demand—determine inter-institutional cooperation patterns, extending cooptation theory to inter-institutional relations and illuminating governance management amid great power rivalry.