4 International Organization innovation is aborted,then internationalization will not ensue,and the degree of openness will remain unchanged in the second period.If,instead,the innovation is allowed to mature,internationalization will proceed,and the degree of openness of the capital market will be higher in the second period than in the first. I now amend the story to make space for coalitions and institutions.Assume that the government decision is the outcome of a policy process in which the most orga- nized interests get to impose their policy preferences.Private interests in the first period anticipate the future distributional effects of the initial innovation were it to run its course in the second period.Anticipated losers will try to nip the innovation in the bud if they can politically organize.Whether or not they can organize depends on the nature of extant domestic institutions (or a subset thereof).To the extent that countries have different institutions,the degree of internationalization chosen by each government will differ,reflecting institutional variation. One advantage of setting up the problem this way is not to confuse the outcome- the degree of openness to capital flows achieved by each country-with the cause-an exogenous innovation promising gains and losses tomorrow to interests that can anticipate its wealth effects and act accordingly now.Internationalization is not or- dained in the present formulation,but unlikely to proceed very far if potential losers enjoy political power.Another advantage is to differentiate the initial technological innovation,which may be treated as exogenous to politics,from the price shock that will result from the widespread adoption of the innovation,which is endogenous.3A possible drawback of the present formulation comes from its perhaps excessive sim- plicity;the process is reduced to only two periods,with actors graced with the gift of perfect foresight.Reality may afford many more periods,with individuals and gov- ernments exhibiting a present foresight limited to the next period alone and a present latitude constrained by decisions made in the prior period.The two-stage set-up, however,with its perfect foresight implication,makes the presentation of the mate- rial clearer. Applying this model to the case of capital market internationalization under the gold standard will require completing three successive steps:(1)extract from the late-nineteenth-century historical reality the exogenous technological changes that had the potential to increase cross-border investment in all countries;(2)derive the potential domestic losers from this innovation,assess their nonmarket options in light of their institutional power,and then derive each country's policy response;and (3)derive the predicted degree of openness to international capital flows that each country should have eventually reached according to the model.The next part of the article presents the three-step argument,and the third part confronts it with the his- torical record. 13.The price shock is taken as exogenous in Rogowski's 1989 setup and also in Frieden and Rogowski 1996.In Rogowski's story the exogenous price shock increases the wealth and power of the supporters of internationalization,thereby leading to greater policy openness.In the present story,the price shock comes too late,if at all,to help the partisans of internationalization prevail over their opponents.innovation is aborted, then internationalization will not ensue, and the degree of openness will remain unchanged in the second period. If, instead, the innovation is allowed to mature, internationalization will proceed, and the degree of openness of the capital market will be higher in the second period than in the Ž rst. I now amend the story to make space for coalitions and institutions. Assume that the government decision is the outcome of a policy process in which the most orga- nized interests get to impose their policy preferences. Private interests in the Ž rst period anticipate the future distributional effects of the initial innovation were it to run its course in the second period. Anticipated losers will try to nip the innovation in the bud if they can politically organize. Whether or not they can organize depends on the nature of extant domestic institutions (or a subset thereof). To the extent that countries have different institutions, the degree of internationalization chosen by each government will differ, re ecting institutional variation. One advantage of setting up the problem this way is not to confuse the outcome— the degree of opennessto capital  ows achieved by each country—with the cause—an exogenous innovation promising gains and losses tomorrow to interests that can anticipate its wealth effects and act accordingly now. Internationalization is not or- dained in the present formulation, but unlikely to proceed very far if potential losers enjoy political power. Another advantage is to differentiate the initial technological innovation, which may be treated as exogenous to politics, from the price shock that will result from the widespread adoption of the innovation, which is endogenous.13 A possible drawback of the present formulation comes from its perhaps excessive sim- plicity; the process is reduced to only two periods, with actors graced with the gift of perfect foresight. Reality may afford many more periods, with individuals and gov- ernments exhibiting a present foresight limited to the next period alone and a present latitude constrained by decisions made in the prior period. The two-stage set-up, however, with its perfect foresight implication, makes the presentation of the mate￾rial clearer. Applying this model to the case of capital market internationalization under the gold standard will require completing three successive steps: (1) extract from the late-nineteenth-century historical reality the exogenous technological changes that had the potential to increase cross-border investment in all countries; (2) derive the potential domestic losers from this innovation, assess their nonmarket options in light of their institutional power, and then derive each country’s policy response; and (3) derive the predicted degree of openness to international capital  ows that each country should have eventually reached according to the model. The next part of the article presents the three-step argument, and the third part confronts it with the his￾torical record. 13. The price shock is taken as exogenousin Rogowski’s 1989 setup and also in Frieden and Rogowski 1996. In Rogowski’s story the exogenous price shock increases the wealth and power of the supporters of internationalization, thereby leading to greater policy openness. In the present story, the price shock comes too late, if at all, to help the partisans of internationalization prevail over their opponents. 4 International Organization