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Why are some political problems managed by decentralized cooperation while others require coercive organizations? The question at the heart of scholarship on global governance, international organizations, and state building is that of how political agents choose to organize their capacity to act in order to solve such problems. I argue in this paper that all institutions of governance--from states to international organizations--are conscious responses to emergent patterns of practices constituted and reproduced by strategic generalizations about the state of the world. These generalized beliefs provide the deep structure of conscious bargaining over the shape and content of the institutions of governance, determining whether highly coercive or more diffuse organizations form. In making this argument, I synthesize a wide array of literatures explaining a variety of different political institutions. To develop the argument theoretically, I build an agent-based computational model demonstrating the dynamic relationship between diffuse interaction, generalized belief formation, and institutional emergence. I then observe the central mechanism empirically by comparing the formation of a coercive state and that of a non-coercive international organization from similar cooperation problems, with an eye towards the role of practices and beliefs.