Working Paper: NBER ID: w10083
Authors: Pierre Azoulay
Abstract: Considerable evidence suggests that information is acquired more easily within than across firm boundaries. I explore why this is observed in the setting of clinical development. Since the mid-1980s, pharmaceutical firms have partly contracted out the operational aspects of clinical trials to Contract Research Organizations (CROs). Using detailed project-level data for 53 firms, I document that even after controlling for a number of alternative explanations, knowledge-intensive projects are more likely to be assigned to internal teams, while data-intensive projects are more likely to be outsourced. The statistical exercise is complemented by in-depth interviews with six pharmaceutical and biotechnology firms. The qualitative evidence confirms that incentives for knowledge and data production are more easily kept in balance in the firm's own internal labor market than in that of its suppliers. Moreover, firms use relational contracts to ensure that their employees' incentives are both balanced and relatively high-powered.
Keywords: Clinical Development; Outsourcing; Knowledge Production; Data Production
JEL Codes: J410; L220; L650; O320
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| project characteristics (knowledge vs. data intensity) (D80) | assignment of projects (internal vs. outsourced) (L24) |
| proportion of academic investigators (I23) | likelihood of outsourcing (L24) |