1. Introduction One of the most agreed results of the large literature on local industrial systems is that their success may be attributed to an appropriate combination between cooperation and competition. Accordingly, such a combination has been investigated and explained under a variety of aspects, including socio-cultural environment, technological change and demand conditions (Becattini, 1991; Best, 1990; You and Wilkinson, 1994; Piore and Sabel, 1984; Saxenian, 1994). In particular, a key element of this successful combination has been identified in the somewhat contradictory co-existence between innovation and imitation or, in other words, in a solution of the well known trade-off between static and dynamic efficiency1. From the point of view of organization theory, the most interesting phenomenon disclosed by this literature are the so-called clusters of firms, that is, a hybrid form of economic organization between the large integrated firm and the set of small independent firms of the neo-classical competitive model. Here the right balance between cooperation and competition lies in the fact that the needed coordination is achieved by combining market mechanisms such as price system with non-market mechanisms such as authority or rules. 1 The literature on technological innovation is extremely vast. Very useful references are Reinganum (1989), Tirole (1988, ch. 10), and the enlightening book by von Weiszacker (1981). Clearly, this literature has been very influential for the present work but its basic issue -the relationship between innovative activities and market structure- has been tackled in more detail in two related papers (Battistini, 2000a, c). 5 This dual feature is relevant for both firms and employer-employee relationships. As the notion of 'flexible specialization summarizes, the high degree of product differentiation and market volatility imposed by globalization and information technology require that resources are free and ready to timely move between different tasks and different firms as much as they have to be highly skilled and dedicated. In turn, this implies that the corresponding institutional arrangement is able to combine the informational and motivational role of prices with the provision of adequate appropriability conditions, that is, precisely an appropriate mix between market and non-market coordination mechanisms. With this framework in mind, what I try to do in this paper is to provide one of the possible explanations for such hybrid organizational structures by applying the new-institutional specificitybased approach to the case of investments which may be imitated. The idea is that, for this kind of investments, it is possible to formulate a definition of an intermediate degree of specificity which can be employed to give a tentative account for a grouping economic organization to be intended as a stylized representation of the clustering organizational models just sketched out above. This strategy is not Continua »