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This article develops a theory of informal governance - uncodified rules of behavior running parallel to formal treaty rules - in international institutions. It builds on, and develops, rational institutionalist approaches in International Relations that explore how provisions for flexibility allow states sustain cooperation in the face of change in their strategic environment. The central argument advanced in this article is that in order to maintain a mutually beneficial depth of cooperation, governments devise, in parallel with formal rules, a "norm of discretion" prescribing that governments facing unmanageable pressure for defection be accommodated. Because some governments face incentives to exploit this norm, the task of adjudicating its use is delegated to a government that stands to lose from excessive accommodation. The norm consequently manifests itself in practices of informal governance as states collectively depart from formal rules in order to exercise discretion. The resulting mix of informal and formal governance is functional in that it renders the institution dynamic and therefore adaptable to contingent domestic demands for cooperation. The plausibility of the theory is probed using the example of European economic integration, but it can be extended to international organizations more broadly. [ABSTRACT FROM AUTHOR]