THE ORGANIZATION OF INNOVATION IN THE UNITED-STATES AND JAPAN - NEOCLASSICAL AND RELATIONAL CONTRACTING

This article discusses the role of intermediate governance structures between vertically related industries in the specific context of techn ological innovation. In the United States, relations between firms in vertically related industries correspond closely to the neoclassical c ontracting model, characterized by arms-length, spot contracting on th e open market. In Japan, inter-firm relations are more likely to invol ve relational contracting, characterized by stable bonding mechanisms and a dense historical network of economic ties between the parties to the exchange. We focus upon the kinyu keiretsu type of relational con tracting between firms of unequal size and power in vertically related industries, which is a special case of the more generally studied kig yo shudan, or inter-market financial group. For illustrative purposes, we compare the contractual arrangements used to manage the developmen t of new technology by 46 US and 27 Japanese semiconductor equipment f irms. We conclude by speculating that the organization of innovation i n the Japanese semiconductor equipment industry has accelerated their development of new technology and led to their extraordinarily rapid w orldwide market penetration.