The purpose of this article is to explore the process by which elites in emerging, multi-ethnic states design new institutions or negotiate the new "rules of the game," combining the use of game theory and social-historical analysis. In doing so, it represents a first attempt to explain why state-builders in a multi-ethnic state exclude some groups while including others. I present my preliminary hypothesis that a new state creates inclusive or exclusive institutions based on its calculated perception of the threat posed by the respective bargaining strategies of the major ethnic groups residing within it, which I argue is directly influenced by the preceding state's institutional structure. In other words, those groups which pose a "credible threat" to the continued rule of present state leaders if excluded will be included, as well as those groups which can help to diffuse this threat. Yet, the assessment of this threat is based largely upon the legacy of the preceding state's institutions and policies. A detailed account of the development of electoral rules in the three newly-independent, multi-ethnic states of Kazakhstan, Kyrgyzstan, and Uzbekistan serve as a "critical test" of my hypothesis.