Voluntary cooperation among governments holds tremendous promise for solving policy problems with regional and national scope. In this article, we apply insights from the theory of institutional collective action to understand the evolution of cooperative governmental institutions. We address the question: What makes a government decide to exit an existing cooperative arrangement and join a new one with a stronger central authority? Our empirical analyses examine state choices about whether to participate in the new Interstate Compact for Juveniles or remain in an existing compact that serves the same purpose. The findings shed light on how governments make trade‐offs between their desire to maintain their autonomy and the need to overcome the transactions costs, coordination problems, and free‐rider problems associated with cooperative governance in order to achieve policy gains.