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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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File URL: http://hdl.handle.net/10.1257/0002828043052259
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File URL: http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=5&article=14&issue_date=December2004
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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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Steven Tadelis, 2002. "Complexity, Flexibility, and the Make-or-Buy Decision," American Economic Review, American Economic Association, vol. 92(2), pages 433-437, May. [Downloadable!]
  2. Andrea Shepard, 1993. "Contractual Form, Retail Price, and Asset Characteristics in Gasoline Retailing," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 58-77, Spring. [Downloadable!] (restricted)
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  4. Jonathan Levin, 2003. "Relational Incentive Contracts," American Economic Review, American Economic Association, vol. 93(3), pages 835-857, June. [Downloadable!]
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  5. George P. Baker & Thomas N. Hubbard, 2003. "Make Versus Buy in Trucking: Asset Ownership, Job Design, and Information," American Economic Review, American Economic Association, vol. 93(3), pages 551-572, June. [Downloadable!]
  6. Holmstrom, Bengt & Milgrom, Paul, 1994. "The Firm as an Incentive System," American Economic Review, American Economic Association, vol. 84(4), pages 972-91, September. [Downloadable!] (restricted)
  7. Carlton, Dennis W, 1979. "Vertical Integration in Competitive Markets under Uncertainty," Journal of Industrial Economics, Blackwell Publishing, vol. 27(3), pages 189-209, March.
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  8. Luis Garicano, 2000. "Hierarchies and the Organization of Knowledge in Production," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 874-904, October. [Downloadable!] (restricted)
  9. Holmstrom, Bengt & Milgrom, Paul, 1991. "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics and Organization, Oxford University Press, vol. 7(0), pages 24-52, Special I.
  10. Duncan Simester & Marc Knez, 2002. "Direct and Indirect Bargaining Costs and the Scope of the Firm," Journal of Business, University of Chicago Press, vol. 75(2), pages 283-304, April. [Downloadable!]
  11. Daniel A. Ackerberg & Maristella Botticini, 2002. "Endogenous Matching and the Empirical Determinants of Contract Form," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 564-591, June. [Downloadable!] (restricted)
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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)
  13. Abraham, Katharine G & Taylor, Susan K, 1996. "Firms' Use of Outside Contractors: Theory and Evidence," Journal of Labor Economics, University of Chicago Press, vol. 14(3), pages 394-424, July. [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. Arnaud Costinot & Lindsay Oldenski & James E. Rauch, 2009. "Adaptation and the Boundary of Multinational Firms," NBER Working Papers 14668, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Janis Kapler, . "The Theory of the Firm, the Theory of Competition and the Transnational Corporation," Working Papers 6, University of Massachusetts Boston, Economics Department. [Downloadable!]
  3. 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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