To understand how regulation influences competitiveness and upgrading processes, this article focuses on the organizational changes involved in “rewarding regulation.” Through a qualitative study of two clusters in the agrifood industry in Nicaragua, it analyzes two types of regulation and their interaction with small producers’ production organizations: food safety and environmental sustainability. The analysis shows that regulation plays a crucial role in fostering changes in organizational practices and routines. This occurs when local organizations build new knowledge and skills to upgrade (...) products and production processes, while developing new connections among producers and between them to other private and public actors that support economic development. “Rewarding regulation” is part of a process of learning and creating networks that help build local know-how and generate supportive collective resources. (shrink)