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Agents of Embeddedness

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  • Pierre Azoulay
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    Abstract

    A rich literature argues that interorganizational networks foster learning and coordinated adaptation among their constituents, but embedded ties between organizations are not ubiquitous. What explains this heterogeneity? Acknowledging the influence of agency relationships within organizations can help refine the scope of embeddedness arguments. This idea is explored in an in-depth qualitative examination of sourcing practices in drug development. The outsourcing of central laboratory services is characterized by repeated interactions, relationship-specific investments, and fine-grained information transfer between buyers and suppliers. In contrast, embedded relationships with contract research organizations have failed to materialize, despite the repeated efforts of exchange partners. Drawing on fieldwork conducted at six pharmaceutical and biotechnology firms, I explain why outsourcing deals take the form of embedded relationships in the first setting, and of seemingly inefficient spot contracts in the second setting. The evidence suggests that the structure of constituent firms' internal labor markets powerfully shapes and constrains the scope of interorganizational networks.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10142.

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    Date of creation: Dec 2003
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    Handle: RePEc:nbr:nberwo:10142

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    1. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November.
    2. Pierre Azoulay, 2003. "Acquiring Knowledge Within and Across Firm Boundaries: Evidence from Clinical Development," NBER Working Papers 10083, National Bureau of Economic Research, Inc.
    3. Helper, Susan & MacDuffie, John Paul & Sabel, Charles, 2000. "Pragmatic Collaborations: Advancing Knowledge While Controlling Opportunism," Industrial and Corporate Change, Oxford University Press, vol. 9(3), pages 443-87, September.
    4. David H. Autor, 2003. "Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 1-42, January.
    5. Kandori, Michihiro, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 63-80, January.
    6. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-80, June.
    7. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
    8. George Baker & Robert Gibbons & Kevin J. Murphy, 2002. "Relational Contracts And The Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 39-84, February.
    9. Greif, Avner, 1998. "Historical and Comparative Institutional Analysis," American Economic Review, American Economic Association, vol. 88(2), pages 80-84, May.
    10. 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.
    11. Asanuma, Banri & Kikutani, Tatsuya, 1992. "Risk absorption in Japanese subcontracting: A microeconometric study of the automobile industry," Journal of the Japanese and International Economies, Elsevier, vol. 6(1), pages 1-29, March.
    12. Robert H. Bates & Avner Greif & Margaret Levi & Jean-Laurent Rosenthal, 1998. "Analytic Narratives," Economics Books, Princeton University Press, edition 1, volume 1, number 6355.
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    Cited by:
    1. Pierre Azoulay, 2004. "Capturing Knowledge within and across Firm Boundaries: Evidence from Clinical Development," American Economic Review, American Economic Association, vol. 94(5), pages 1591-1612, December.
    2. Tannista Banerjee & Ralph Siebert, 2013. "The Impact of R&D Cooperation on Drug Variety Offered on the Market: Evidence from the Pharmaceutical Industry," Auburn Economics Working Paper Series auwp2013-20, Department of Economics, Auburn University.

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