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Capturing Knowledge within and across Firm Boundaries: Evidence from Clinical Development

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Author Info
Pierre Azoulay
Abstract

How do firm boundaries influence employees' acquisition of information? Using detailed project-level data and qualitative evidence, I document that pharmaceutical firms are more likely to outsource the coordination of data-intensive clinical trials, while they are more likely to assign knowledge-intensive trials to internal teams. Managers do not choose between market and hierarchy, but between the hierarchy of the firm--in which subjective performance evaluations are combined with flat explicit incentives--and the hierarchy of its subcontractor--whose virtue stems precisely from the ability to provide high-powered incentives on a narrow set of monitorable tasks.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 94 (2004)
Issue (Month): 5 (December)
Pages: 1591-1612
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Handle: RePEc:aea:aecrev:v:94:y:2004:i:5:p:1591-1612

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  12. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier. [Downloadable!] (restricted)
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  14. Wernerfelt, Birger, 1997. "On the Nature and Scope of the Firm: An Adjustment-Cost Theory," Journal of Business, University of Chicago Press, vol. 70(4), pages 489-514, October. [Downloadable!] (restricted)
  15. Pierre Azoulay, 2003. "Agents of Embeddedness," NBER Working Papers 10142, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  1. Sharon Novak & Scott Stern, 2007. "Complementarity Among Vertical Integration Decisions: Evidence from Automobile Product Development," NBER Working Papers 13232, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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