Working Paper: NBER ID: w10142
Authors: Pierre Azoulay
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.
Keywords: No keywords provided
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 |
|---|---|
| internal labor market characteristics (J29) | embedded ties (Y60) |
| internal labor market characteristics (J29) | arms-length contracts (L14) |
| internal labor market characteristics (J29) | perception of risk (D81) |
| perception of risk (D81) | embedded ties (Y60) |
| perception of risk (D81) | arms-length contracts (L14) |
| internal labor market characteristics (J29) | future interactions (L14) |
| future interactions (L14) | embedded ties (Y60) |
| future interactions (L14) | arms-length contracts (L14) |