In this chapter we outline a formal model to explain variations in the internal structure of states and the types of state systems that they form. We classify polities according to whether they control their foreign policy and whether they give resources to an aspiring imperial center through transfers or by allowing the center to directly extract them. Variations along these two dimensions differentiate six sovereign bargains from full independence to imperial absorption. We then specify the payoffs for each of these bargains and explore the role of interaction capacity and international competition as potential causes of the change from transfer-based bargains to direct extraction. We find interaction capacity to be a strong explanation for this transition, and while international competition may deepen existing forms of extraction it does not appear to explain well the transition from transfers to direct extraction. We provide a preliminary test of these ideas with a comparative case study of the Oyo empire in West Africa and Mysore in South India during the eighteenth and nineteenth century.