Institutionalism rejects neorealist claims that the international system is characterized by anarchy. Rather, it is more accurate to think of the international system as made up of rational states that exhibit growing interdependence. Interdependence creates incentives for cooperation among states as it offers mutual benefits to all parties engaged. States learn cooperation through reciprocity or are forced to cooperate for sake of securing public goods. Institutionalists also focus on the free riding problem, which assumes that nations will tend to cheat and not do their part in producing public goods. International institutions, such as the United Nations or World Trade Organization, can help in establishing and sustaining cooperation among states by reducing transaction costs, helping with monitoring (free riding problem), and offering third party mediation.
Neorealism and institutionalism have their differences, but they share also some common assumptions. Therefore, both perspectives agree that states are the main actors in international relations, act in rational self-interest, and are faced with anarchy as an obstacle to cooperation. However, neorealists view anarchy as a threat to survival, while institutionalists see it as a threat to cooperation. For institutionalists, institutions can help states to overcome impediments to cooperation as states have an incentive to cooperate (public goods) or learn how to work together. Grieco recognizes that both realists and