Environmental Liability and Organizational Structure
AbstractThis paper presents a multitask principal-agent model to examine how environmental liability rules for individual managers within a corporate hierarchy affect, on the one hand, the incentive schemes the organization provides and, on the other hand, the choice between a functional or a product-based organizational structure. If managers are risk neutral, a product-based organization dominates a functional organization and allows to obtain first-best effort level. If, moreover, there are no diseconomies of span, both organizational forms are equivalent. It is also shown that for the dominant function, effort levels are higher in a product-based organization than in a functional one. With risk averse managers, no organizational structure dominates the other in general, but we are able to identify under which conditions it does not matter who is held liable for environmental damages.
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Bibliographic InfoPaper provided by Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment in its series Energy, Transport and Environment Working Papers Series with number ete0401.
Length: 39 pages
Date of creation: Jan 2004
Date of revision:
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More information through EDIRC
contracts; liability; firm structure; principal-agent;
Find related papers by JEL classification:
- K3 - Law and Economics - - Other Substantive Areas of Law
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-15 (All new papers)
- NEP-ENV-2004-02-15 (Environmental Economics)
- NEP-LAW-2004-02-15 (Law & Economics)
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.:
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