Capturing Knowledge Within and Across Firm Boundaries: Evidence from Clinical Development

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 knowledge-intensive trials are more likely to be assigned 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.