We study the homogeneous catalytic copolymerization of olefin and carbon monoxide.(1-4) The catalytic center is modeled by Pd(II) coordinated to PH2CH=CHPH2. C2H4 is used as a model for the olefin. We investigate the chain propagation mechanism for alternating copolymerization as well as the side reactions resulting from multiple insertion of olefin and CO, respectively. We find that strictly alternating copolymerization is kinetically favored over homopolymerization of olefin and thermodynamically as well as kinetically favored over successive multiple insertions of CO. Insertion of one C2H4-CO unit into the Pd-ethyl bond yields -219 kJ/mol, whereas insertion of a C2H4-C2H4 segment yields exactly -200 kJ/mol. Insertion of a CO-CO segment yields only -88 kJ/mol. Therefore, multiple successive CO insertions are by comparison so unfavorable as to be ruled out completely. We explain the experimentally observed preference of strictly alternating copolymerization over multiple olefin insertions by the higher adduct formation energy of CO (-78 kJ/mol) as opposed to only -51 kJ/mol for C2H4. Furthermore, the activation barriers for the insertion of a CO/C2H4 unit into the chain are only 48 and 58 kJ/mol, respectively, whereas the barrier for C2H4 insertion is 65 kJ/mol. All acyl species encountered are only weakly stabilized by agostic interactions, whereas Pd-alkyl species are strongly stabilized by agostic interactions. The acyl species can stabilize itself by -31 kJ/mol over the most favorable agostic conformation by adopting a eta(2)-carbonyl conformation. The growing polyketone chain is strongly stabilized by forming chelate bonds between the carbonyl oxygens and Pd. The strictly alternating copolymerization pattern originates from a combination of effects : On the one hand, the number of CO units incorporated into the chain is maximized, because CO (as the better pi acceptor) stabilizes the reactive center more than ethylene during the adduct formation proceeding insertion and CO also faces a lower barrier during insertion into the chain. On the other hand, subsequent multiple insertions of CO are avoided since they are kinetically as well as thermodynamically highly unfavorable.