This article shows how institutions enable and constrain forms of co-ordination for inter-organizational relations, and how these affect innovative performance. The analysis is based on a theory of learning and on a theory of relations that combines a social exchange perspective with elements from transaction cost economics. Performance is analysed in terms of production costs, transaction costs, product differentiation, diffusion of innovations, incremental innovation, and radical innovation. The method is illustrated with a comparison between the US and Germany. The first is more flexible and market oriented; the second is more oriented towards inter-organizational networks. Policy recommendations focus on how flexibility and durability of relations might be reconciled.
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